Conversions Services

Your expert for questions

Sylvia Weidinger
Partner, Capital Markets & Accounting Advisory Services, PwC Gwermany
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Expertise in accounting and regulatory specifics: The challenges of a conversion

There can be many reasons for converting accounting from one standard to another, be it following a takeover, the entry of an investor or an IPO. However, this process is not only a challenge for companies and their employees, but also has a profound impact on internal systems and processes.

Whether an entire group is switching to IFRS on a stand-alone basis or companies are reporting to a new shareholder in their GAAP as a result of a transaction, companies need expertise in the new accounting standards such as IFRS, US GAAP or Chinese GAAP (PRC GAAP). This adds a "major project" with complex project management to the day-to-day business. There is often a lack of human resources for this. And it is not just group accounting that is affected, but the entire reporting system of subsidiaries, joint ventures and associated companies. At the same time, companies must take into account opportunities and limitations - for example in relation to controlling and taxes. Guidelines, processes and IT systems must be regularly adapted and employees from different departments must undergo additional training. There are also country-specific peculiarities that make the whole thing even more complex.

The Challenges

Challenges in dealing with US GAAP

Despite efforts to achieve convergence between IFRS and US GAAP, there are still significant differences that can lead to adjustments in accounting methods. Particularly for European companies with global subsidiaries that may not have previously prepared their accounts in accordance with IFRS or HGB, the transition to US GAAP involves considerable effort. In addition to technical challenges, a change in accounting often requires the collection of data that may not yet be available in the company in an automated manner.

One example of this is the conversion to US GAAP for reporting to a US parent company, where the European company often has to adopt all the accounting methods and principles of the US parent company. This allows the company to utilise the existing documentation of the parent company. However, additional data may be required in the area of leasing, for example, which generally has to be collected from all companies at great expense.

A further challenge is to find sufficiently qualified personnel who are experienced in dealing with US GAAP and can cope well with the technical requirements.

Challenges in dealing with PRC GAAP

Although Chinese GAAP is essentially based on IFRS, conversions to the GAAP of the People's Republic of China remain a complex endeavour. Particularly in the case of M&A activities with Chinese investors in the background, companies are faced with the challenge of adapting to the strict regulatory requirements of the Chinese supervisory authorities. The standardisation and regulation of PRC GAAP leave little room for entrepreneurial decisions and require a thorough knowledge of potential investors and their regulatory responsibilities.

An additional obstacle may be the need to obtain regulatory filings or approvals from special bodies. State-owned and listed companies in China often have to go through a rigorous approval or filing process with the regulatory authorities, which usually have very specific and extensive requirements for financial reports.

Furthermore, professional service providers such as financial advisors, auditors and valuers engaged by potential Chinese investors are required to provide various reports to the Chinese regulatory authorities in connection with M&A transactions. As a result, they will request certain financial reports or data under PRC GAAP, which further increases the complexity and expense of PRC GAAP conversion.

Our consulting approach in four modules

The experts from the Capital Markets & Accounting Advisory Services division will advise you on all questions relating to conversion. Our proven conversion consulting approach comprises individual modules that build on each other: