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GAAP training

I am the Financial Controller of a company with a US headquarters, and operations in the UK and Czech Republic, which is our largest. The entities have recently been restructured to produce a US headed group, and I have been given the task of coordinating the consolidation of the three entities results; I am a UK FCCA. The group is privately owned, and the three major shareholders are active employees in the business.

I need training in the issues involved in consolidating the accounts of a Czech company into US GAAP and I was given your name as someone greatly experienced in this area, who has or does undertake training.

I was hoping to organise a training session lasting, I would have thought, about a few hours or a half day if that was considered sufficient.

We are a fairly simple group, with little in the way of complications such as goodwill.

I'd be happy to provide you and/or your team with US GAAP training. Unfortunately, Czech National Standards are not compatible with US GAAP and thus cannot, as such, be consolidated, at leaset not without seriously violating most US GAAP recognition and measurement principles (as well as a host of specific rules).

In general, I recommend my clients do not attempt to convert CNS to US GAAP (or IFRS, for that matter). Instead, my practice consists in advising them on how to keep two separate sets of accounts, which forestalls a vast number of conversion complications.

Thus, if someone suggested that I can assist in a conversion task such as you are suggesting, they were mistaken.

Many thanks for getting back so quickly regarding the US GAAP training. I note your comments regarding the difficulties of consolidating CNS with US GAAP.

I would like to clarify what I'm trying to achieve here. At the moment, we are a private company not even filing accounts in the US. My initial brief is to start producing management accounts for internal consumption. Ideally, of course these should be on US GAAP principles, however that is not set in stone. There must be many American companies which have Czech subsidiaries where the results of those subsidiaries are in some way or another reflected in the published accounts of those US groups.

I gather from what you're suggesting that these companies probably keep two sets of books, one on CNS and the other on US GAAP, and consolidate the latter and file the former locally.

We are, however, a small company and cannot currently afford the expense of setting up an operation of this nature. Is there really no other alternative?

Yes, there are many subsidiaries of US, UK and other GAAP country companies with operations in the CR, are (from small private ones to large multinationals). In general, they have three alternative approaches to choose from.

The first is to take Czech accounts and simply translate them into English, maybe reorganize them a bit and then and consolidate them on a "close enough for government work" basis. This is generally sufficient when one is dealing with an immaterial local operations. In effect, the parent simply consolidates the sub's cash flow and doesn't bother trying to make the sub GAAP compliant. Personally, I have nothing against this approach. It does not pretend to be anything more than what it is (a "back of the envelope” consolidation) and really is good enough for a small, immaterial local branch.

The second approach is to try to convert accounts created under one set of standards to the other at the cart of accounts / GL level (unless I’m mistaken, this is the approach you are suggesting I train you to do). This is generally attempted by companies when sub grows large enough to start being material (and management is under pressure to come up with something "GAAP like" in a hurry). This approach is often good enough as a transitional phase to full GAAP compliance, I do not recommend using it. The reason is that it either tries to force legalistic national standards on US GAAP or vice versa. It can rarely be done correctly (not violating the letter and spirit of either set of standards), because doing so practically requires going through the company’s accounts on an item by item basis, which is both complicated, time consuming and virtually guarantees errors.

The third approach (which is generally on the program after the sub becomes material enough to force the parent / and or its auditor start to taking their GAAP reporting responsibilities seriously) is the "dual account" approach. Since this is the only possible way to achieve full compliance with both national standards and US GAAP, it is generally used US listed multinationals with Czech operations large enough to perpetually be on the local authority's radar screen. These companies eventually realize (though it usually takes a few less than pleasant encounters) that you cannot turn apples into oranges by making a few adjustments to a GL. The impetus for such a realization is often a SOX, Sec. 404 audit (which uncovers the host of discrepancies that inevitably occur when accounts prepared to legalistic local standards are converted to GAAP) or an especially unfriendly visit from the local tax authorities (which often impress on a company the importance of following the letter of the law and the differences between it and generally accepted accounting principles).

Anyway, since I only advise my clients on the best possible approach, I cannot help you with any conversions. On the other hand, once you decide on a dual account approach, I will be more than happy to advise you on how to be fully GAAP compatible.

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