Academic journal article Journal of Accountancy

Found in Translation: A Guide to Using Foreign Financial Statements

Academic journal article Journal of Accountancy

Found in Translation: A Guide to Using Foreign Financial Statements

Article excerpt

EXECUTIVE SUMMARY

* More CPAs are finding themselves working with foreign statements. As progress is made in convergence and harmonization between FASB and the IASB, the interpretation of foreign financial statements should become easier. CPAs in the United States should watch these developments carefully and familiarize themselves with IFRSs.

* Users should be ready to adjust their expectations about language, currency, accounting practices, methods and presentation when working with foreign statements.

* Even if a company's statements have been audited, CPAs should be aware that the sophistication and enforcement of accounting rules vary significantly by country.

* Approximately half of the countries in the world have adopted international standards for publicly listed companies. Although the United States is not one of them, FASB and the IASB are working on convergence projects.

* Many domestic CPA firms can, through their international alliances and networks, help U.S.-based CPAs in business and industry understand foreign financial statements.

* Cultural differences often make foreign statements prepared using U.S. GAAP quite different from statements of U.S.-based companies. CPAs should not accept anything at face value.

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Your Monday is off to a reasonably good start. The improvements you made last year to your company's financial reporting system are paying off. You're getting data faster and your boss, the president, is delighted with the new reports you created. But this morning's call is not a request for yet another report. "Did you see what we're paying for bearings for the new 800s?" blurts your boss. "Every time we turn around, our domestic supplier hikes prices. I've found a new supplier, and it's for sale." "Good," you reply "Where is it located?" "Ukraine," he says. "And I want you to take a look at its financials. They're in English."

If you have not already experienced this situation, you may soon. Globalization, once the exclusive realm of America's largest companies, is now a reality for companies of all sizes--so all financial managers and CPAs must be prepared to work with foreign financial statements. You may need to include information from foreign statements in your own statements or tax returns, or to rely upon foreign financials when making investment decisions, securing credit or using foreign outsourcing firms. CPAs in industry may find themselves dealing with foreign subsidiaries or working for a subsidiary of a foreign company

As CPAs, you have expectations about language, currency, accounting practices, methods and presentation when reading and analyzing U.S. GAAP statements. When dealing with foreign or transnational statements--even if they are presumed to be prepared using U.S. GAAP--be ready to adjust your expectations.

KNOW COMMON APPROACHES

When providing statements to foreign users, companies adopt a variety of approaches based on factors such as language, currency and accounting practices. These cover the spectrum from not changing the primary foreign statement at all to preparing primary statements using U.S. GAAP (see exhibit 1, page 40). The specific approach may not be obvious and may vary from year to year. The options include:

Doing nothing. If a company chooses to provide its primary statements without making any changes, it often will be apparent because the statements will be written in a foreign language.

Primary statements under U.S. GAAP. Many foreign companies choose to prepare primary statements using U.S. GAAP.

Convenience translation. Companies may translate the language into English, but provide no information about the accounting practices and currency. Volvo's balance sheet in exhibit 2, page 41, is an example of a convenience translation. The currency is the Swedish krona (SEK) and the format does not follow U. …

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