Cross Border Accounting with Katrina Nacci

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Summary of this Episode

• Introduction to US GAAP and its importance for companies expanding into the US market
• Key differences between US GAAP, UK GAAP, and IFRS
• The process of converting from UK GAAP to US GAAP
• Compliance requirements and auditing considerations for US GAAP
• Preparing for fundraising rounds with US investors
• Challenges and common issues faced during the conversion process
• Strategies for effective knowledge transfer and ongoing US GAAP support

Topic DiscussedIntroduction to US GAAP and its importance for companies expanding into the US market

The discussion began with an introduction to US GAAP (Generally Accepted Accounting Principles) and its significance for companies looking to expand into the US market. Katrina Nachi, a cross-border accounting advisor, highlighted that companies often face challenges when entering the US market due to differences in accounting standards and regulations. Understanding and complying with US GAAP is crucial for companies seeking US investors, acquiring US companies, or planning an IPO in the US.

Key differences between US GAAP, UK GAAP, and IFRS

Katrina explained the key differences between US GAAP, UK GAAP, and IFRS (International Financial Reporting Standards). While IFRS and US GAAP are becoming more aligned, there are still nuances, particularly in areas such as revenue recognition, capitalization of costs, and share-based compensation. UK GAAP, on the other hand, has more significant differences from US GAAP, especially in terms of what can be capitalized.

The process of converting from UK GAAP to US GAAP

Katrina outlined a three-phase process for converting from UK GAAP to US GAAP:

1. Qualitative assessment: Identifying differences in accounting policies and creating a matrix comparing current policies under UK GAAP with suggested US GAAP policies.

2. Quantitative assessment: Adjusting calculations and schedules to reflect US GAAP requirements and quantifying conversion adjustments.

3. Financial statement preparation: Preparing financial statements and footnote disclosures under US GAAP, incorporating conversion adjustments.

Compliance requirements and auditing considerations for US GAAP

The discussion covered the additional compliance requirements and auditing considerations when adopting US GAAP. Companies may need to undergo a US GAAP audit, which typically involves a lower materiality threshold and more thorough walkthroughs and control testing. The timing of audits and potential overlap with local audits were also discussed.

Preparing for fundraising rounds with US investors

Katrina emphasized the importance of being proactive in preparing for fundraising rounds with US investors. Presenting a qualitative assessment of US GAAP differences and potential conversion adjustments can demonstrate an understanding of the requirements and facilitate due diligence processes. This can potentially broaden the range of investors available to the company.

Challenges and common issues faced during the conversion process

Several challenges and common issues were discussed, including:

- Lack of documentation and messy calculations under current GAAP, making the conversion process more difficult.

- Determining the appropriate retrospective period for conversion, which may depend on the intended use of the financial statements.

- Ensuring knowledge transfer and ongoing support for the local finance team to maintain US GAAP reporting after the conversion.

Strategies for effective knowledge transfer and ongoing US GAAP support

Katrina highlighted the importance of effective knowledge transfer