At a glance
The acquisition of a foreign business can introduce complex financial reporting challenges when accounting for income taxes.
Observations from the front lines provides PwC's insight on current economic issues, our perspective regarding the business impacts, and actions we have seen companies taking to effectively address those issues.
Companies are seeking opportunities for growth and diversification. They are increasingly using cross border M&A activity as a mechanism for becoming established in foreign markets and to stimulate growth. Such activity is expected to increase in 2015, a result of lower foreign tax rates, a strengthening US dollar, US stock market indices reporting record levels and an accumulation of cash by foreign subsidiaries. These trends have afforded companies the opportunity to engage in M&A activity by using the strong US dollar to purchase foreign companies.
The acquisition of a foreign business can introduce complex financial reporting challenges when accounting for income taxes. Pre-acquisition, a company must gain a sufficient understanding of the foreign target’s operations and tax structure in order to know where the acquired assets reside, the relevant taxing jurisdictions, and the applicable tax rates. Post-acquisition issues may arise from internal reorganizations and the need to perform GAAP conversions.
The benefits of cloud computing can be substantial, but companies should consider possible implications to reporting and balance sheet metrics.
Unexpected expenditures and accounting adjustments – like those arising from environmental obligations – can dramatically impact capital budgeting and future earnings. Companies have found that practices vary widely across sectors and both engineering and accounting expertise are critical in assessing environmental obligations.
Recently the FASB issued an Accounting Standards Update to permit private companies to amortize goodwill acquired in a business combination, and to apply a simplified goodwill impairment model. This change is intended to help reduce reporting complexity for private companies; however, private companies should carefully consider this alternative, especially for those considering an initial public offering.
The broadening of private company securities sales has helped drive the development of two new offerings from the NYSE and NASDAQ OMX. Both solutions, although different in approach and focus, are designed to provide a platform and market structure for private companies to manage and conduct the sale of private company securities.