Anne Phillips, CEO
Philan Manufacturing Company
8 Ashburton Place
Boston, MA 02111
Dear Ms. Phillips:
Congratulations to your company for getting such a great opportunity of global expansion.
It can open to you a lot of new financial opportunities, new markets and also, probably,
reduce your manufacturing costs. However, there are some challenges that I would like to
inform you about. First, the laws and regulations in France and China are very different
from those in the U.S., so there are some topics such as export/import limits and rules,
licensing and permits, taxation and other legal aspects, that you need to carefully research
before making a decision. Another challenge that you would have to face is the financial
reports conversion from US GAAP to IFRS, since France complies with International
Financial Reporting Standards, and China follows the Chinese Accounting Standards,
which are considerably converged with IFRS. All the complications listed above can result
in additional expenses, which might overweigh the possible savings and profits from
global expansion.
There are two major accounting standards: International Financial Reporting Standards,
which are used by approximately 120 nations, and U.S. Generally Accepted Accounting
Principles, which are used in the United States. The International Financial Reporting
Standards are the accounting standards that provide a framework for public companies to
prepare and disclose their financial statements. This set of accounting standards is
developed by an independent, non-profit organization – the International Financial
Accounting Board (IASB). The International Financial Reporting Standards (IFRS)
development is a consultation process that involves interested parties from around the
world. There are six stages before the IFRS gets published. First stage is setting the
agenda, where on the International Financial Accounting Board meetings, the IASB
discusses and evaluates potential projects. The board then consults with the IFRS Advisory
Council, and make a decision by voting at the IASB meeting. The second stage is planning
the project. When the IASB decides to add an item to the agenda, they also have to decide
whether the project will be joining another standard-setter or it will be conducted alone.
The third stage is development and publication of a Discussion Paper. This is not
mandatory, but the IASB usually publishes it to give an overview about the issue, possible
solutions, and the preliminary views of the IASB or the authors of the Discussion Paper.
The publication also aims to collect any comments from constituents. In the next stage, the
IASB publishes the proposal of the standard in the Exposure Draft for public comment.
