One of my present preoccupation is to draw up an Excel document in which a Romanian enterprise accountant could introduce in Sheet 1 the balances and turnovers in lei (the Romanian currency) as they are presented in 2 end-of-year Romanian trial balances of the Romanian enterprise where he/she acts as accountant. In Sheet 2, I intend to transpose the Romanian data as presented in Sheet 1 into a "standard" (as made by myself) USA Chart of Accounts, on the basis of which I could draw up Sheet 3 which should contain the classified Balance Sheet, Income Statement and Statement of Cash Flow of that Romanian enterprise; the elements of these above 3 financial statements will be the basis for Sheet 4, which will contain more than 30 financial ratios (as used both in USA and internationally) calculated for that Romanian enterprise.
From the internet I have learned that you have had the same preoccupation for the Czech enterprises and not only. Furthermore, you had a real experience in USA and in the Czech Republic or other countries relative to balancing "national GAAPs" to real GAAP financial statements. My questions are the following:
1. From your past and present experience, do you think my drawing up the above Excel document is scientifically possible?
2. Has any Romanian or foreign enterprise or professional appealed to your expertise to draw up such an Excel document?
3. Supposing that the drawing up of this Excell document will imply a lot of scrupulous hard work, will it be worth drawing it up?
4. In case it is worth, what would be your advice?
Thank you for the patience of reading this message.
conversion to US GAAP
people here have been trying to map CZ accounts
People here have been trying to map CZ accounts to US GAAP for as long as I can remember. The problem is that US GAAP's recognition and measurement requirements differ. So, if one wants to convert one to another, one would need to start with disaggregation. For example, in CZ accounting a company can have a single account for all its computers. If one wanted to apply US GAAP, one would need to break this down by purposes into, for example, office PCs, R&D workstations, plant computers, MIS hardware, etc. Then one would need to determine reasonable useful lives (and depreciation methods, and salvage values) for each class of computer (or go item by item). If a company does something more complicated, such as R&D associated with acquiring and assembling a production line, it gets more complicated.
Then there is the issue of substance over form. As a rule, CZ accounting is based on legal form while US GAAP concerns itself with economic substance. However, management sometimes go to great lengths to draft contracts that exploit legal formalities and, as a result, obfuscate economic substance. And even if management is not trying to be creative, it can still be difficult. For example, CZ accounting still recognizes operating leases. That means going through the expense, picking out all the contracts that need to be capitalized and measuring them the way US GAAP requires. This implies that one cannot simply take the balances of the local accounts at face value and map them to comparable US GAAP accounts. Adjustments need to be made. And if the company has hundreds or thousands of agreements that need to be gone through, it can take a while.
To answer your question. No. Unless Romanian accounting has recognition and measurement requirements comparable to US GAAP (the way IFRS does), it would not be possible, scientifically or otherwise to transpose Romanian data a "standard" US GAAP chart of accounts. This also implies that the COAs we publish are not designed to be mapped to or mapped from. They are designed to be applied directly. As such, they do not even make an attempt to make mapping easy by, for example, using structure resembling Czech account structure.
Instead, I would recommend simply translating a Romanian financial report into English and plugging the amounts into the ratio formulas as best as you can. The advantage of this approach, it would be obvious you are starting with something that is not US GAAP so the result would be less misleading.
To answer the second question, No, it would not be worth the effort. The only way I know to achieve full comparability to US GAAP (or IFRS for that matter) is to have a dual account setup (multiple COAs, one for each jurisdiction and one for US GAAP) and a software package (i.e. OneStream, Hyperion, Tagetik, S/4HANA, Prophix) that supports multiple reporting. The other, suboptimal, solution is to first disaggregate/aggregate local GAAP accounts as necessary. Then make adjustments (i.e. capitalizing those operating leases expensed locally). If this is not possible on the account level, one has to go item by item. Not only is this laborious, but also requires inside knowledge of company's operations. It can be done (kind of) in Excel, but it’s not pretty (picture thousands of rows, hundreds of columns spread and 30, 40 or more sheets, and that’s for a relatively small organization).
In any event, since I’m not a fan, in the 25 years or so I’ve been doing this, I’ve never advised a client on how to do a mapping (though I still get requests). However, since I also do public trainings, I know a lot of companies keep trying. That is why they send their people to my trainings, so they can learn enough about US GAAP to map away the differences. I try my best to dissuade them, some listen, some don’t.
Trying to map Romanian to US GAAP
I thank you very much for your expertised answers and explanations.
I think I will do what a lot of companies do, namely I will keep trying mapping.
I also think that the suboptimal solution to disaggregate/aggregate local GAAP accounts and subaccounts is less misleading than simply translating from Romanian into English the groups of accounts as conceived by the Romanian legal format of the balance sheet and income statements, and then plugging the amounts into the ratio formulas. Such translations of the group of accounts do not coincide with and are not always to be found in the elements/items necessary for the numerators and the denominators of the formulas of the internationally recognized most relevant ratio formulas.
As I am better acquainted with Excel, I will try to make the mapping using this way of organizing information, thus avoiding supplementary costs of my study and saving time for understanding other software.
Thank you once again for clearing these issues in my mind.