Reconciliation and Mutual Recognition | MYACCOUNTINGINFO.NET

As international equity issuance and trading grow, issues associated to distributing financial statements in nondomestic jurisdictions come to be far more crucial. As currently noted, supporters argue that international convergence will help resolve problems connected with filings of cross-border financial statements.

Two other approaches have been advanced as possible solutions towards the difficulties associated to cross-border financial statement filings: (1) reconciliation, and (2) mutual recognition (also referred to as “reciprocity”). With reconciliation, foreign firms can prepare financial statements applying home-country accounting standards, but also need to present a reconciliation between important accounting measures from the residence country and the country exactly where the financial statements are getting filed. By way of example, the U.S. Securities and Exchange Commission (SEC) permits foreign registrants to file their financial statements applying another comprehensive body of accounting principles besides U.S. GAAP or International Financial Reporting Standards (IFRS). Nonetheless, organizations that do so should reconcile net earnings, shareholders’ equity, and earnings per share to U.S. GAAP, if materially different. Reconciliations are much less costly than preparing a full set of financial statements under a unique set of accounting principles. However, they only present a summary, not the full picture of the enterprise.

Mutual recognition exists when regulators outside the residence country accept a foreign firm’s financial statements based on home-country principles. By way of example, the London Stock Exchange accepts U.S. GAAP-based financial statements in filings created by foreign corporations. Reciprocity will not enhance the cross-country comparability of financial statements and can create an “unlevel playing field” in that it could enable foreign organizations to apply standards less rigorous than those that apply to domestic companies.

SEE ALSO:
Bank Reconciliation
U.S. Securities and Exchange Commission Response to IFRS