• Free for qualified executives and consultants to industry

  • Receive quarterly issues of Area Development Magazine and special market report and directory issues


Business Accounting: New Global Standards Impact Business Plans, Location Decisions

Experts believe that adopting uniform global accounting standards will positively impact companies' business plans, including location decisions.

Nov 08
(page 2 of 2)
Impact on Location Decisions
Changes in depreciation and how investments in plant and equipment are reported can have large tax implications and impact expansion and location decisions. Past decisions based at least partly on tax considerations may have to be unwound in light of the changes to global accounting standards.

Some firms may benefit from the conversion to IFRS. For example, under GAAP, once an asset was written down, it could not be written back up. IFRS rules allow formerly depressed assets to be revalued upwards if conditions change. This could bolster the balance sheets of companies which have written down assets that have experienced a rebound since the writedown.

"The move to global accounting standards will help U.S. companies reduce the cost of raising expansion capital with greater access to foreign markets and foreign investors," says Rebecca Albarelli, global practice leader of financial operations for Jefferson Wells in Milwaukee, Wisconsin. "It will also streamline tax strategies since all location decisions will be based on the same reporting standards. It allows U.S. companies to look at locations not previously considered and judge them based on their economics rather than financial reporting requirements." She points out other areas that could have big impacts on U.S. corporations, depending on how they recorded past transactions: mergers and acquisitions, the treatment of goodwill, the allocation of assets between properties, and transfer pricing. Each company will need to determine how past decisions will be treated under the new rules.

"A key element is getting lost in the process - the SEC requirements apply only to public companies. There are a lot of large and small privately held companies that do business overseas," says Henry Mendoza, CPA and managing partner of Mendoza Berger & Company LLP in Irvine, California. "Many developers are privately held. What will happen to these companies? They need to keep appraised on what is happening with IFRS. I expect a trickle down effect."

Pounder warns there will be some prickly issues that will need to be resolved in order to make global accounting standards effective and fair. "Some countries such as China and the EU currently have exclusions (carve-outs) on some reporting requirements," he says. "This jurisdictionalism is the antithesis of using the same standard and poses a great danger to the very concept of global accounting standards."

Hancock sees positive outcomes for American companies. "Too often in the past, U.S. firms spent a lot of time, effort, and money lobbying the foreign government to adopt U.S. practices and standards," he says. "This strategy slowed investment into the new market by months and, in some cases, years. Adopting global accounting standards as soon as is practical will position U.S. companies to shave a lot of time, expense, and effort from market expansion plans and increase their competitiveness vis-à-vis European and Asian firms."

Follow Area Development