1. What is GAAP Conversion?

Converting from one GAAP to another GAAP. It often means changing more than just the numbers; there are often wider business or reporting implications to manage. It also requires change in strategic and operational procedures or policies.

IFRS Convergence

2. Why is GAAP Conversion required?

The need for GAAP conversions arises for a variety of reasons:

  • Local regulatory change? particularly when an old GAAP is being replaced by a new one in a jurisdiction (this new GAAP could be a new local standard or one aligned to IFRS)
  • In the due diligence phase of an acquisition? where it is important to understand how the accounting of a target will change or be adapted as a result of being consolidated into a new group
  • Preparation of shareholder information pack, where financial reporting of a potential target needs to be included under the same accounting policies as the acquirer.
  • An initial public offering (IPO) ? when a company must prepare its financial statements under new rules for a listed company (most commonly under IFRS for listings cross border), which it did not have to apply as a private company.

3. What is process of performing GAAP Conversion?

GAAP Conversion

    
Phase Objective and Process
Impact 
Assessment

Objective:
Identify potential differences between reporting GAAPs under consideration
Process:

  • Read financial statements to determine applicable technical areas in scope
  • Read accounting manuals, existing white papers, key contracts and gather relevant information
  • Perform initial GAAP analysis and identify areas requiring in-depth research.
  • Prepare a conversion project plan
Measurement

Objective:
Analyze differences to determine any adjustments, or prove that no adjustment is required and compute the adjustment amount.
Process:

  • Quantify new GAAP adjustments
  • Develop a reconciliation model to factor in the effects of the conversion
  • Revise KPIs and budgets based on updated measurements
Presentation and Disclosure

Objective:
Skeleton accounts, including disclosures and accounting policies
Process:

  • Draft skeleton financial statements including footnotes
  • Create spreadsheet based reporting packages and supporting bridge analysis
  • Prepare opening balance sheet/group reporting template
  • Draft significant accounting policies and financial statement footnotes
Sustain

Objective:
Embed new reporting framework into current processes
Process:

  • Assess the need to update systems and processes
  • Assess impact on tax, distributable reserves and other areas
  • Revise accounting policy and procedure manuals
  • Assess any staff training needs

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About the Author

Director

SANYAM GOEL CPA(USA), CA Website- www.accorppartners.com Mobile - 9968297717 Email - sanyamgoel @ accorppartners.com Service areas - Transfer pricing, IFRS/USGAAP, FEMA, SOC, USA Taxation Offices -411, ITL Twin Tower, B-09, Netaji Shubhash Palace, Pitampura, Delhi - 110034 906, Kanakia Wall ... Read more


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