Question

Financial statements prepared under accounting practices in other countries often differ from those prepared under generated accepted accounting principles (GAAP) in the United States. For example, BMW Group prepares its financial statements under International Financial Reporting Standards (IFRS) as adopted by the European Union. In doing so, BMW's balance sheet reports fixed assets first, followed by current assets. It also reports stockholders' equity before the liabilities. In contrast, balance sheets prepared under U.S. accounting principles report current assets followed by fixed assets and current liabilities followed by long-term liabilities and stockholders' equity. The United States is BMW's second biggest market (right behind China).

1. Do you think the BMW Group should prepare financial statements in accordance to GAAP (US-based) or International Financial Reporting Standards?

2. Why?

Answer 1

Hello Buddy,

Coming to your question,

1. No, according me to BMW Group is not required to prepare its financials on the basis of GAAP just because the US is the second largest market for it.

2. The reason for such an answer is that an enterprise is required to prepare its financial statements in accordance with the applicable framework in the area/country where it conducts its operation and then the enterprise may also be required to prepare the same financials as per the framework applicable to its parent company for consolidating their numbers. This re-preparation of financials as per another framework may either be done by the subsidiary company or the parent company. This is the requirement of any framework no matter which framework is applicable but is only required if a company has any of its branch in any other country other than its home country.

In the given case, if BMW has a subsidiary in the US it should definitely prepare its financials of such subsidiary as per the framework applicable to it (i.e. GAAP). However just because the US is second largest market of the automobile maket, does not in itself warrant it to prepare financial statements as per the framework applicable therein. It may do so voluntarily but is not required by any statue or regulation.

I hope the above solution is what you were looking for. For any further queries or doubts in the solution, please feel free to drop a comment. Please do leave a positive feedback, Thank you :)