Originally, we only provided services to local companies interested in GAAP
In the early 1990s, I began training people how to apply US GAAP.
I (who am I) was born in the Czechoslovakia in 1964. In 1968, my family and I emigrated Canada to escape the communists and soon after moved to United States where I studied and eventually worked as an auditor at (then) KPMG Peat Marwik at their San Francisco office. 14 to 16 hours 6 to 7 days a week proved too much for me to handle, and auditing banks was little fun, so I decided to take a break. After visiting (then still) Czechoslovakia, I stayed and decided to restart my career by visiting a few companies looking for English speaking accountants.
That is when I realized that Czech accounting standards and GAAP I grew up with were nothing alike.
That is also when I realized I could be much more useful as an educator than an accountant.
Although my company now provides mostly other services, training is still, by far, what I enjoy the most.
As demand grew, I established this company and we began offering additional services.
After the EU adopted IFRS, it was logical to add these standards to the mix.
While they are not and most likely will never be identical, US GAAP and IFRS are fundamentally comparable.
Specifically, both focus on investors. Both deal with reporting. Both are judgmental. Both are created by independent standard setters insulated from politics and political considerations. Neither are legalistic. Neither are procedural. Neither are law.
The similarities between US GAAP and IFRS become especially obvious when compared to a "national GAAP".
The term national GAAP, when used tom refer to the accounting systems used in most countries, is a misnomer and rather misleading.
The reason is that the acronym GAAP stands for Generally Accepted Accounting Principles.
However, there is nothing Generally Accepted about most national GAAPs.
Most national GAAPs are law so they are not authoritative because they are generally accepted by the members of the professional community.
In general, countries with a common law tradition (the United Kingdom, United States, Canada, Australia, South Africa, etc.) take a similar approach to accounting standard setting.
In these countries, accounting standards are set by a non-governmental board comprising representatives of the professional community who seek to make the standards reflect the principles generally agreed upon by members of that community.
Again in general, countries with a statutory (civil) law tradition (most countries worldwide and most EU member states) also take a similar approach to accounting standard setting.
In these countries, accounting standards are set by legislatures/state-ministries comprising elected officials/government appointees who seek to make the standards reflect the political considerations considered important by the electorate of the particular country (or region as in the EU).
While the European Union does not set accounting standards directly, it does establishes the guidelines (the Accounting Directive) member state governments must follow when creating their particular, national accounting standards.
Instead, they are authoritative because the courts will punish, by incarceration, the managing director of any company that does not follow the rules of the national GAAP to the letter.
They are not based on principles either.
For example, in the Czech Republic, no conceptual framework for Czech GAAP exists.
Instead, Czech GAAP is created the same way most laws are created: ad hoc, reflecting the political climate of the day.
However, the term “national GAAP” has become so ingrained, especially in the popular media, that calling it anything else would be pointless.
The most glaring difference, unlike US GAAP and IFRS, created by independent boards (largely) insulated from politics, national GAAP (in most countries) is law, created by a legislature.
As a result, not only do politics significantly influence the content and form of national GAAP but national GAAP is, to a large extent, subordinated to the fiscal needs of the state.
On a practical level, national GAAP is procedural and legalistic. It prescribes a chart of accounts (deviation is punishable by law). it prescribes accounting procedures (deviation is punishable by law). It prescribes the content and form of accounting documents (deviation is punishable by law). It serves as the basis for tax reporting (yes, you guessed it, deviation is punishable by law).
So, while reconciling IFRS and US GAAP is not particularly difficult, reconciling either with a national GAAP is practically impossible.
While we have provided this service to Czech companies, doing so demands a complete reconstruction of the accounting system, can take months, requires a fairly large staff and is anything but cheap.
But only if the company wants a US GAAP financial report because it wants to list on a US capital market (we have never had a similar request from a company wanting to list on a market in the EU).
If it only wants one because its US based subsidiary has a US tax obligation, reconciliation is an option.
Speaking from personal experience (who am I), the reason is that tax CPAs in the US are pretty flexible and used to staring with less than perfect accounting.
Not to sound critical, but facts are facts.
Unless a US company is listed on an exchange and forced by the SEC to take it seriously, its approach to its accounting tends to be lackadaisical.
This is especially true when I compare US companies to the ones I see here.
Here, if any company, no matter how small, does not cross the Ts and dot the Is (check twice and then one more time just for good measure), it’s managing director will go to jail (5 to 10 years is normal).
As a result, even tiny Czech companies tend to have dramatically better accounting than many, even medium-sized US ones.
True, Czech GAAP only serves to determine the company’s tax obligation and is less than useless for any other purpose, but it's always pristine.
2020 brought another change. Lockdowns forced people to start collaborating online.
For us, it has meant we now serve clients from places as varied as Saudi Arabia, the UAE, Tunisia, India, South Korea, Hong Kong, Taiwan and more.
Originally, there were only Generally Accepted Accounting Principles.
The United States had its GAAP, the United Kingdom its GAAP, Canada its GAAP and so on.
While International Accounting Standards had been around since 1975, they were not widely used until they became International Financial Reporting Standards and were adopted by the European Union 2002.
I think (who am I) the IFRS Foundation should have called it I GAAP.
That would have been poetical.
But I suppose it REALLY wanted to MAKE SURE people did not confuse the INTERNATIONAL version of GAAP with any national version.
Oh well.
Now, instead of a nice, easy to pronounce acronym, we are stuck with I - F - R - S.
The International Accounting Standards Committee was founded on 29 June, 1973 (link: cdn.ifrs.org).
IAS 1 was approved in November 1974 for publication in January 1975. (link: eifrs.ifrs.org).
The IFRS Foundation was founded in 2000 (link: ifrs.org).
Regulation (EC) No 1606/2002 of the European Parliament was approved on 19 July 2002. (link: eur-lex.europa.eu).
Today, while IFRS is used in most countries, the United States sticks with GAAP.
However, since many of the world's largest companies are based in the US and since these companies have subsidiaries everywhere, US GAAP continues to be widely used.
The US also continues to have the largest, most liquid capital market.
As a result, many non-US companies wishing to list securities on this market also wish to minimize the stigma attached to being a foreign private issuer utilizing the SEC's IFRS exception.
Consequently, US GAAP still represents about half our business.
After the European Union adopted IFRS, we began seeing demand for these standards too.
Then, after we posted our first chart of accounts, we began seeing visitors all over, not just the EU.
At first, most were happy to subscribe, download a COA and (we suppose) make any necessary adjustments themselves.
After a time, we began receiving requests for customized COAs, which has since become our most sought after service.
2020 brought another change. As people became accustomed to accomplishing even complicated tasks remotely, we began receiving inquiries for services which we had previously only provided face-to-face: setting up reporting systems or making the adjustments necessary to reconcile IFRS and US GAAP.
While they are not and most likely will never be identical, US GAAP and IFRS are fundamentally comparable.
Specifically, both focus on investors. Both deal with reporting. Both are judgmental. Both are created by independent standard setters insulated from politics and political considerations. Neither are legalistic. Neither are procedural. Neither are law.
The similarities between US GAAP and IFRS become especially obvious when compared to a "national GAAP".
The term national GAAP, when used tom refer to the accounting systems used in most countries, is a misnomer and rather misleading.
The reason is that the acronym GAAP stands for Generally Accepted Accounting Principles.
However, there is nothing Generally Accepted about most national GAAPs.
Most national GAAPs are law so they are not authoritative because they are generally accepted by the members of the professional community.
In general, countries with a common law tradition (the United Kingdom, United States, Canada, Australia, South Africa, etc.) take a similar approach to accounting standard setting.
In these countries, accounting standards are set by a non-governmental board comprising representatives of the professional community who seek to make the standards reflect the principles generally agreed upon by members of that community.
Again in general, countries with a statutory (civil) law tradition (most countries worldwide and most EU member states) also take a similar approach to accounting standard setting.
In these countries, accounting standards are set by legislatures/state-ministries comprising elected officials/government appointees who seek to make the standards reflect the political considerations considered important by the electorate of the particular country (or region as in the EU).
While the European Union does not set accounting standards directly, it does establishes the guidelines (the Accounting Directive) member state governments must follow when creating their particular, national accounting standards.
Instead, they are authoritative because the courts will punish, by incarceration, the managing director of any company that does not follow the rules of the national GAAP to the letter.
They are not based on principles either.
For example, in the Czech Republic, no conceptual framework for Czech GAAP exists.
Instead, Czech GAAP is created the same way most laws are created: ad hoc, reflecting the political climate of the day.
However, the term “national GAAP” has become so ingrained, especially in the popular media, that calling it anything else would be pointless.
The most glaring difference, unlike US GAAP and IFRS, created by independent boards (largely) insulated from politics, national GAAP (in most countries) is law, created by a legislature.
As a result, not only do politics significantly influence the content and form of national GAAP but national GAAP is, to a large extent, subordinated to the fiscal needs of the state.
On a practical level, national GAAP is procedural and legalistic. It prescribes a chart of accounts (deviation is punishable by law). it prescribes accounting procedures (deviation is punishable by law). It prescribes the content and form of accounting documents (deviation is punishable by law). It serves as the basis for tax reporting (yes, you guessed it, deviation is punishable by law).
So, while reconciling IFRS and US GAAP is not particularly difficult, reconciling either with a national GAAP is practically impossible.
While we have provided this service to Czech companies, doing so demands a complete reconstruction of the accounting system, can take months, requires a fairly large staff and is anything but cheap.
But only if the company wants a US GAAP financial report because it wants to list on a US capital market (we have never had a similar request from a company wanting to list on a market in the EU).
If it only wants one because its US based subsidiary has a US tax obligation, reconciliation is an option.
Speaking from personal experience (who am I), the reason is that tax CPAs in the US are pretty flexible and used to staring with less than perfect accounting.
Not to sound critical, but facts are facts.
Unless a US company is listed on an exchange and forced by the SEC to take it seriously, its approach to its accounting tends to be lackadaisical.
This is especially true when I compare US companies to the ones I see here.
Here, if any company, no matter how small, does not cross the Ts and dot the Is (check twice and then one more time just for good measure), it’s managing director will go to jail (5 to 10 years is normal).
As a result, even tiny Czech companies tend to have dramatically better accounting than many, even medium-sized US ones.
True, Czech GAAP only serves to determine the company’s tax obligation and is less than useless for any other purpose, but it's always pristine.