Impact on Location Decisions
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
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.
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."
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."