Jurisdiction is the obstacle facing any US strategy for adoption of IFRS. It stands in the way of comparable global financial reporting practices. I’ll illustrate with a summarized practice example.

XYZ-EU is a European entity reporting under IFRS. Its shares trade on two major EU exchanges and it lists ADR’s in the US. It has US operating subsidiaries that report up to the parent under IFRS. The US subs also report locally under US GAAP for stand-alone financials used by creditors, debt rating agencies and counterparties. The EU parent’s auditors are a Big 4 firm, with the EU offices responsible for parent ops and US offices responsible for US ops.

XYZ-US is an operating sub. It manufactures productive assets used by US industry under long-term lease contracts for the productive output of the asset. All of XYZ-US’s assets are under lease but it’s unable to realize the full economic value of its productive assets. It does not generate enough income under various laws and rules to unlock substantial amounts of the assets’ productive value.

To maximize realizable value, XYZ-US pools the assets together into portfolios and structures them under LLP ownership. It engages third parties to bid for ownership of the asset pools. The realizable value of each asset pool’s economic benefits will vary for each bidder based on their own earnings and balance sheet structures.

XYZ-US prepares its IFRS reporting framework for the transactions. The EU audit firm reviews the transactions, does its investigation and concurs on the reported treatment as a revenue arrangement. The US offices of the same auditor signal a preliminary nod for concurrence but ultimately decide the transaction is debt.

The audit firm’s EU office and US national office spend 2 months discussing the matter and trading views. Meanwhile, the transaction is pending acceptance of a final 3rd party bid, awaiting the auditor’s decision. Several billion dollars are on the table and the European parent company (XYZ-EU) has decided the deal will not proceed if it is deemed debt because of the ramifications to its balance sheet & credit ratings.

After much debate, the stalemate remains for the EU & US offices of the audit firm. Revenue under IFRS and debt under US GAAP. Neither body of rules addresses the transaction directly. IFRS relies on a wholly interpretive lens, while US GAAP has an EITF that is 20 years old but speaks directly to nearly all of the facts and offers revenue or debt as the outcomes.