Most companies have to deal with accounting at one point or another. Whether you’re managing inventory, paying vendors or auditing financial statements, it’s almost inevitable that you’ll have to track numbers at some point. If you work in a company that deals with an international scope, then chances are that sooner or later the need to transition to the U.S. Generally Accepted Accounting Principles (US-CMA) will arise. There are several factors why transitioning to the US-CMA framework is beneficial for your company, as well as when it is mandatory. Knowing the pros and cons of this transition can help you decide if it’s right for your company and your team
What are U.S. Generally Accepted Accounting Principles (US-CMA)?
US CMA is the set of accounting standards that are used to track and record financial transactions in the U.S. Companies that transact globally or have a significant portion of their revenue from U.S.-based customers are expected to use US CMA accounting standards. The main reason behind this is that financial statements prepared using US-CMA standards are more comparable across companies, regardless of industry. This makes it easier for investors to analyze the financial health of companies.
When is a CMA transition mandatory?
There are three main reasons why a Company must switch to US-CMA immediately. They are: – Significant drop in revenue from one jurisdiction – If your company derives at least 25% of its revenue from one jurisdiction, switching to US-CMA is mandatory once that percentage goes below 10%. – Significant increase in expenses from one jurisdiction – If your company incurs at least 25% of its expenses from one jurisdiction, switching to US-CMA is mandatory once that percentage goes above 10%. – New equity investment from one jurisdiction – If a new investor starts holding at least 10% of your company’s equity, switching to US-CMA is mandatory.
What happens during a CMA US transition?
The main goal of a CMA US transition is to unify the way companies record and account for transactions in order to provide a more accurate and consistent financial picture. Switching to US-CMA entails a series of changes that need to be made by your accounting team. This process will take several months and will definitely disrupt your day-to-day operations. The core changes that need to be implemented include the following: – Transitioning from the local currency to the U.S. dollar. – Changing the way revenue and expenses are recorded. – Changing the way assets and liabilities are recorded. – Switching from a balance sheet to an income statement format.
Pros of switching to US-CMA
There are many advantages to switching to US-CMA accounting standards, including: – Greater investor confidence – When investors are looking at financial statements of your company, their primary concern is to understand your performance over time. With US-CMA accounting, your financial statements will be more comparable across companies, making it easier for investors to understand your company’s performance. – Better cash flow forecasting – Financial forecasting is an essential part of any business’s planning process. With US-CMA accounting, your company will have a more accurate picture of its cash flow, allowing better decision-making. – Simpler and more efficient business operations – If your company does a significant amount of business in the U.S., switching to US-CMA will help business operations run more smoothly by providing a more standardized and consistent framework.
When it comes to accounting, one size does not fit all. Different geographic regions have different business and accounting practices that companies need to be aware of in order to succeed. If your company has U.S.-based customers or investors, or derives a significant portion of its revenue from the U.S., then switching to US-CMA accounting standards is a good idea. Doing so can help improve investor confidence, offer a clearer perspective of your company’s performance and make business operations more efficient. However, if your company doesn’t have any of the above characteristics, then it might not be necessary to switch to US-CMA accounting standards.