IFRS vs. GAAP Reporting: A Challenge for Multinationals

When it comes to complying with complex accounting, financial, statutory and tax reporting requirements under both U.S. GAAP and IFRS, even innocent mistakes can be deadly. One U.S. based global provider of oil field technology and supplies found that out the hard way. The company was forced to restate its financials twice within six months, and each one resulted in a roughly $500 million adjustment in its financial statements, including penalties, fees and other costs.

April Little, CPA, Partner and IFRS Tax Practice Leader at Grant Thornton LLP, helps global corporations navigate GAAP vs. IFRS compliance issues. She shares two examples that illustrate the challenges corporate tax professionals face:

  • Reporting on uncertain tax positions. “A lot of companies are under the mistaken impression that there is no accounting for tax uncertainties under IFRS because there’s no FIN 48 (FASB Interpretation No. 48, Accounting for Uncertainties in Income Tax) corollary,” Little says. “That’s technically correct, companies using IFRS should be reporting contingent income tax obligations under IAS 37 (Contingencies).”
  • Fixed asset componentization. Under U.S. GAAP, you might simply depreciate “Building A” for 40 years, she says, but IFRS requires breaking assets down to their separately replaceable parts. “Companies should account for the building structure, roof, HVAC system or flooring separately, with different useful lives.”

On the positive side, recent IRS “repair regulations” regarding expenditures related to tangible property change the way you account for U.S. taxes on plant, property and equipment depreciation. “If you follow them to the letter it will ultimately look a lot like the componentization required under IFRS, so that becomes a very leverageable activity,” Little says. Modify your fixed asset reporting now, she says, and you will be fine under U.S. GAAP, the new IRS regulations and IFRS, as well. A proactive approach allows companies to maximize cash flow for income taxes, leverage costs associated with compliance and componentization and more effectively utilize an organization’s resources.

Little sees two basic strategies companies can use to deal with U.S. GAAP and IFRS reporting. One is to opt for accounting methods that result in fewer differences between the two. “That simplifies financial reporting but does not optimize either tax or financial planning,” she says. Better: Adopt IFRS reporting in a way that optimizes long-term results for your company. “That typically results in reconciling more differences between U.S. GAAP and IFRS, but delivers more bang for your buck.”

You can learn more in the webcast, “IFRS vs. GAAP Reporting: Implications for Multinational Corporations.”

 

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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