(Part I here)

The EU office of the auditors is firm on the treatment of the transactions as revenue. They are the first and last authority for approval of the transaction in Europe. They consult with the IASB as a courtesy and find concurrence for their treatment but this has no jurisdiction over US reporting matters.

XYZ-US suggests to the US auditors that the next natural step is to approach the SEC regarding the issue. The parent company and the US auditors are cool to that step and the parent decides against the action.

The wild card is that the audit is out for bid. It was put out for bid before the auditors returned a decision on their view of the transaction. Another Big 4 firm wins the bidding process and the transaction must be reviewed by the new auditor from square one.

A thorough review and investigation is conducted over a number of weeks by the new audit firm’s EU and US offices. A conclusion is reached and shared by both EU & US offices of the new firm. The transaction is revenue.

Within the next year the parent (XYZ-EU) is acquired by another EU company (Buyer). The buyer is from a different EU country. A third Big 4 firm is the auditor for the buyer and will take over XYZ-EU and XYZ-US’s audits as well.

The Buyer is listed and traded on one European exchange. It’s in their home country. XYZ-EU is not listed on that exchange prior to acquisition. As part of the acquisition, the ADR’s of XYZ-EU are also delisted from the US exchange. There will no longer be any US public reporting obligations. Stand-alone financials will still be issued by XYZ-US for creditors, etc.

After the merger is consummated, XYZ-US’s transactions are reviewed by the buyer’s Big 4 auditor. This will be the 3rd Big 4 firm auditing the transaction. Their EU audit office determines the transaction is debt and their US office sees it as revenue. The EU office’s decision will govern. It audits the buyer (new parent), who is listed only on an EU exchange.

The transaction came under the jurisdiction of three countries, two using IFRS and one using US GAAP. Three of the Big 4 audit firms vetted the transaction in six of their international offices, including the US National offices of all three.

Jurisdiction makes or breaks any strategy for global adoption of IFRS resulting in comparable global financial statements.