The hidden cost of going US GAAP with Katrina Nacci, cross‑border accounting specialist

I think the most surprising thing not to do with the specific accounting differences is more just an overhaul of the process systems and documentation.

It doesn't really matter what the specific differences are, it matters what you're doing.

And a lot of the times, especially with these scale up companies, you know, smaller ones, you don't have the data, for example, around all of the leases, your lease, inventory, or like how you've spent time with software developers, things like that.

Even if you haven't really needed it so far, far for anything, you're going to have a very hard time like putting that together retroactively, retrospectively, to be.

Able to under time pressure.

Welcome to business without BS and today we're talking about a problem most founders don't see coming.

So you've expanded to the US Things have gone quite well, I guess.

Not terribly.

Revenue's growing, investors arrive and then someone says, we need US GAAP numbers.

And that sounds like an innocent request, but it absolutely isn't.

And it can be quite a learning curve, I would say.

So.

Joining me to demystify this conundrum is Katrina Notchi, who specializes in stepping into exactly that moment and helping you deal with it.

I guess your, your therapist consultant for US GAAP and helping companies convert.

They don't have to be British companies, but any overseas company who's suddenly becoming a US Company and now needs US Gap.

And if you're thinking, what the hell is US Gap?

That's G A P. That's generally accepted accounting practice.

So if you're accountants like me and Katrina, we hear the word gap all the time.

You know, this UK gap, this US gap, various countries have their own set of rules to sort of define how a set of accounts should be laid out, what needs to be in them, these sorts of questions, and how do you treat certain things, how do you treat turnover and stuff.

So this is, you've got to convert to the US Way of doing all of that, survive the transition and not lose your mind in the process.

So, Katrina, welcome to the podcast.

Thanks for having me.

Looking forward to being here.

Is that a fair summary?

Definitely, yeah.

Yeah.

And, and this is something that happens to a business.

It's not.

You've got to get to what's normally the trigger for this happening.

It's really bringing in U.

S stakeholders.

So it's not necessarily just doing a U.S. expansion.

I have a lot of people that come to me maybe too early in this process to say, hey, we're setting up a branch or a subsidiary in the US you help US but typically they just need tax support, bookkeepers, that type of thing.

You're not necessarily triggering US gap just because you're doing more business with the us it's really the stakeholder base and bringing in either US investors through a big kind of Series B, plus maybe raise or getting acquired by a US company or wanting to go public in the us.

And then a fourth kind of caveat is there are some very specific rules when you're regulated.

I've worked with a few FinTechs in the UK where as soon as they expand into the US and set up a US subsidiary, they do need full US GAAP statements, either from a state perspective or SEC perspective as a regulated industry.

Well, because.

Because they're in fintech, you're talking more.

Not a software provider.

Exactly.

Yeah.

When you're dealing with actual financial services.

Regulated.

Yeah.

I don't know, what's the regulation?

FCA or whatever it's called there.

Yeah.

Okay.

And then, I mean, actually, it's funny, just as a side point when you say, I only learned the other day when people say, you know, is it B series or A series or C?

That's all to do with Inks will literally have A shares, B shares, you know, because as Brits, we just jump on these bandwagons, start calling everyone chief executive officers and talk about A and B series, and we're all like, what are we on about here?

But actually that when you're saying you're getting a B round, that literally means in America that the Inc is issuing B shares, doesn't it?

Yeah.

And I wouldn't put too much of an emphasis on like specifically that stage.

It's just trying to sort out the patterns for me of like when they're needing to kind of bring more sophistication to their accounting and reporting.

So there could be a.

You know, I think it's happening more and more, maybe with these AI companies that get by, you know, without a lot of people kind of bootstrapped until they start raising like billions of dollars for the first big raise.

And then you're dealing with a different situation.

But it could even be not equity, it could be debt.

I had a conversation with some JP Morgan bankers a week or so ago where they're saying for some foreign companies that set up in the US even to like get credit cards and things out, they're making the subsidiaries do US GAAP statements.

So it has nothing to do then with a fundraise.

It's really just, like I said, dependent on the stakeholders and what they're wanting to see.

And maybe let's give people a bit of context too.

So we've got UK Gap, which is frs, basically Financial Reporting Standards.

Just.

I know this stuff is probably very dull to some people, but just so you understand what, what this terminology.

And then you've got ifrs is the International Financial Reporting Standards, which are becoming more and more popular and they, you know, they have different ways of treating things.

So it might sound.

Oh, it's just, you know, you just.

This is just.

Oh, a few adjustments or something.

It could be quite major changes to your accounts.

You could be recognizing turnover quite early because you can.

Under one system, you know, there's, you know, quoting some of them.

It's like the probable flow of economic benefit is a phrase from one.

And it's like probable is like, well, more than likely we're going to get this money.

Well, that's very different from another system which might say, no, you've got to definitely have this money, you know, so they have different barriers to entry effectively, don't they?

And then in the us, what all companies use US Gap, do they?

That's the standard.

I wouldn't say that necessarily.

U.S. gap, I would say is kind of on par with like an IFRS in terms of very specific, like account counting reporting standards.

Very detailed.

Yeah.

But there could be instances where even just a plain vanilla US company isn't on full US gap.

Maybe they're on like a accrual basis, but it's really.

Unless you need full US Gap for an audit, investors, etc, you're probably more like a U.S. tax basis, essentially, which is closer to like the local gaps and the statutory.

Yeah.

So who requires it?

The.

Do the IRS require you use US gaap?

No, because there are some differences even between US GAAP and like the tax code for like depreciation.

So it's not for them.

Yeah.

You don't have to have an audit in the U.S. as I've discovered, I. E. They don't have the concept like we do in the uk.

If we have company's house, everything's on public record and then you have a statutory audit once you get big enough that doesn't exist.

Everything's private in America.

So people who require audits or investors or you're listed, those are basically there.

Yeah.

Or you're getting acquired and then you're becoming part of a company that's getting audited, that type of thing.

Okay, so those are the.

Really the examples.

Regulators, investors or inquiries.

Or you're becoming listed and is it is, is it often.

Does it, Is it, Is it often connected to a requirement of audit from these investors?

Do you see that regularly?

Yeah, yeah.

It's typically, you know, like I listed a few different instances where I might come in around bringing in US stakeholders, basically fundraise acquisition or ipo.

I like clients that come to me that are doing fundraise.

That's kind of my ideal client, I would say, where they're typically bringing in more sophisticated investors for the first time and maybe they've done some like, loose consolidations from management accounts, that type of thing, but have never had a requirement to have a full consolidated audit.

And they've probably just had statutory audits on their individual subsidiaries, wherever they're located.

And the first time you need a consolidated audit is typically when you're converting to ifrs or US gaap, because you would otherwise have no other set of rules essentially to do the consolidation, because all the different subsidiaries, they just have different, like statutory accounting and there's no way for you to like have one overarching principle, essentially that would allow you to consolidate something in Germany with the uk.

You know what I mean?

Like, how would you kind of mesh?

Yeah.

So you're saying you've got an international group, they're all using different standards and therefore.

Yeah, it's chaos really, isn't it?

And that's, that's not uncommon, I would say.

And so what when someone suddenly, usually at some point, some poor founder suddenly said, right, we need this all in US gap.

And now I'm sure they'll be in the meeting going, yeah, no problem.

Yeah, yeah, sure, we'll, we'll get that sorted out.

But what, what's the reality of this?

Why is this such a big deal?

In reality, it's less about the differences between accounting standards.

Like anyone could come in and be like, well, this is UK GAAP says you should be doing.

This is what US GAAP says you should be doing.

Theoretically, these are the differences.

It's more around generally bringing more sophistication to their accounting and reporting, which they probably haven't had before in terms of having a proper consolidation done, having documentation that supports complex accounting, significant transactions, etc.

And even just building out the processes and procedures where certain things maybe weren't material or weren't really kept with adequate records around, like sub ledger, supporting files, etc, that you're going to need to.

Be able to give me an example to illustrate that, just to just give it some context.

So literally, what, there's a line item and they don't really know what it is and they haven't gone back.

You've got to go back the five years to work out well what is this and document it properly.

It's a sort of, I mean is it, is it the hell of intercompany.

Or you know, it's not so much inter company.

I think to some extent that kind of like washes out because consolidating it, it ends up not really being true.

It would be more like revenue for example.

I think you mentioned that before where say for they're just taking the easy approach to kind of straight line it, but haven't necessarily looked at different performance obligations of taking a contract and breaking it into distinct pieces and then maybe not straight lining it, maybe it's at a point in time versus overtime and kind of breaking that out and having a file that would support that type of.

Okay, well that's a good example, isn't it?

Lots of people take on longer term contracts and then in startup mode they might be signing up two year contracts.

They just recognize all the revenue day one, don't they?

And then someone comes in and says well this should be spread over two years.

Your revenue's been overstated for years.

Actually it's much of more of a flat line, you know, and then you've got to what document why they did it the way before and why we're doing it now and how it all works effectively so that when you then have an audit you have a file that's like this is how we got there.

Rather than the auditor saying well what's this all about?

And you'd be like yeah.

And that's I guess ask Terry.

Where's Terry?

Terry left.

And that's more of a, I think a mentality shift rather than, like I said, just addressing the theoretical differences and standards.

Because from what I see when companies in Europe are going through statutory audits, they're able to lean on their auditors a lot more and don't necessarily have all those documents together because the auditors can just put memos together if they need it.

But US auditors, even if it's not a public company audit, they tend to try to distance themselves a little bit more and say well we're not putting pen to paper for you.

So you really have to take the initiative to do this like proactively before, oh okay.

They don't get their hands dirty.

And someone said to me, the reason there's also semantics of language in this because if you say an audit to Americans, they think of a tax audit, which we would call an inquiry, which I've discovered over the years.

Don't say they freak out.

They're like, what do you mean there's an audit?

And it's like, you know, so all of that.

But also the other reason they Americans do not like statutory account or no sorry, audits of their accounts, like we would use the word is someone said to me a few years ago, they said, yeah, but you know, it'll cost like a minimum of $100,000 to do one these, you know.

Now in the UK you're lucky to get change out of £20,000 from an audit as a base cost.

I mean, they're very expensive here as well.

But yeah, a hundred, you know, $100,000.

It's suddenly like, oh my God.

And that's fair, is it?

They extremely expensive exercises and they're more expensive if you don't get this organized.

Right?

Definitely.

Yeah.

Okay.

Where what, you know, the, the biggest differences, I mean, I guess, yeah.

Revenue recognition.

You, you effectively what then come in and just sort of work through.

Will you look at.

Let's take a company, let's say the company's got a uk, a German, Italian company.

Everything's everywhere.

And now they would need a US Holdco, a top co, wouldn't they, to have to consolidate in the US and do US gaap.

Does this apply to people who are headquartered here and just doing business there?

It does, yes.

I worked with a UK headquartered company last year.

That's basically that exact fact pattern where they had five or six subsidiaries all around Europe and then they had a US company, but it was not a US top co.

But they had brought in large US investors and so they were converting to US Gap.

So it doesn't necessarily matter like where your top co is.

It's just like I said, the types of state.

And the U.S. investors can't be chatted to.

You can't say, look, UK cap's fine, let's use UK gap.

They're like, no, it's not happening.

We do US gap.

Okay.

And then from that point of view, that meant that every company in the group or just all of those companies then had to switch to US gaap,.

All of those subsidiaries.

And therefore, even though it's got us in the name, you can report.

I don't even know this subject that well because I don't do it so much anymore.

But what in the UK we have a right to report under US gaap, do we?

Anyone can report under them.

Well, no.

And this is Something that you have to be very careful of when you're doing these gap conversions.

It may be different with ifrs, because I think a lot of European countries do allow ifrs.

As far as I'm aware in the UK you can have UK GAP or ifrs.

But typically, I think just from a hygiene perspective, whenever you're going through this type of gap conversion, you should have a step up to US GAAP and not start replacing all of your accounts with us GAAP.

So you'll still be doing your bookkeeping under FRS 102 or whatever and then have a separate ledger that's like just your US GAAP adjustments and then combine those two to get your US GAAP figures.

And that's important just because of what you mentioned, that you still have local obligations wherever you are to file from a tax perspective.

And they would want to see those statutory accounts.

What do you.

You come in and try and fix the problem.

But do you need to go and find advisors who understand US Gap?

Because you kind of come in to try and fix the problem, don't you?

And then you'll leave them with a setup effectively.

And then your work will be at the management accounts level almost in terms of the QuickBooks, the accounting systems, I. E. You will re address how they're doing or is it really you're just adding a layer on top of of how it consolidates and everything.

And then I'm trying to think who maintains it.

Right.

You see where I'm going.

It's a layer on top.

I think typically there's still separate management accounts because you can make other like funky adjustments, kind of do whatever you want in those.

Or sometimes you have investors.

Yeah, it's essentially another layer on top.

And in terms of who would maintain that going forward, it's actually pretty easy to empower local finance teams.

I would say as long as you have good technical accountants that understand either FRS or ifrs.

Sure, they may not have had any experience with US gaap, but when you bring somebody like me in that can kind of work shoulder to shoulder in the process and then do really good knowledge transfer at the end with workshops and things, it's pretty easy at least.

Maybe they don't understand everything about US gaap, but specific to that business to understand the differences and how they're going to keep schedules, to have those adjustment calculations going forward, forward, and then they just essentially like repeat.

Do they do and they doing them monthly or you just do it once a year, this sort of adjustments and things.

It also depends on how Often investors want to see it.

I think it's probably typically quarterly and then going through an audit once a year.

Okay, and why did you end up doing this?

That's a good question.

I kind of fell into it.

I've never been good at career planning for myself.

I spent a long time with PwC.

So I started in Boston and then wanted to move to Europe.

So came to Germany actually briefly to work for it.

SEC company, SEC was based in Germany and then went back to PwC in Frankfurt as a local hire.

And it just so happened, the connection that I had to a Frankfurt partner, he was the head of the Capital markets and Accounting advisory group.

And they had this like subtopic group within that that was, you know, American expats or local hires like I was.

And we were focused on taking European companies public in the US or doing accounting inversions when there were acquisitions across the borders.

So basically just kind of fell into that.

And that's where I had the technical experience.

Also went to Dubai doing this work for a couple of years and then I was in private equity for three years for a Toronto based company was their first European finance hire.

So to put in everything from scratch.

And then we made acquisitions all around Europe.

So I'd been in the cross border space for over a decade, kind of specifically had this very niche technical experience and then also had the industry layer on top of that where, you know, going into all these different markets, I had probably like seen 10 plus different types of statutory accounts.

So it's very easy for me, even if I've never, you know, worked on Gap in a specific country in Europe to kind of pick it up and run with it.

And so I just focused very, very specifically on this niche for the past four years, working for myself.

Yeah, I'd love to hear you.

You speak German then with an American accent, I would guess more or less.

I don't really need it so much for work now because.

Because if a company wants to work with me, everything has to be in English for what they're doing.

Right.

To bring us.

Absolutely.

What do you think is the most surprising thing for people during this, you know, what should they prepare for?

I think the most surprising thing, like I said, is not to do with the specific accounting differences.

It's more just an overhaul of the process systems and documentation.

Because when people hear that I have this experience, everybody wants to ask me, I think you kind of did as well, like what are the specific, specific differences?

And it doesn't really matter what the specific differences are.

It matters what you're doing.

And a lot of the times, especially with these scale up companies, you know, smaller ones, when you start to get under the hood, there's just a lack of like process and documentation there.

So it's really just, like I said, bringing more sophistication to their records.

And it's essentially it comes down to having better data at your disposal.

If you don't have the data, for example, around all of the leases, your lease inventory, or like how you've spent time with software developers, things like that, even if you haven't really needed it so far for anything, you're going to have a very hard time like putting that together retroactively, retrospectively to be able to.

Or under time pressure.

Yeah.

Does it change valuations or KPIs or.

I don't think so.

It's hard for me to do that experiment on this because you can't have one company and say, oh well here, look at these US accounts versus our local accounts.

If there's US accounts available, the investors are always going to defer to that.

I would say what would impact the valuation is potentially more around the capabilities of the internal team themselves.

And like the fact that they're able to consistently quickly produce US GAAP statements I think probably says a lot around just how the company is operating as a whole as opposed to the investors, you know, seeing a specific like adjustment and being more comfortable with it.

I think a lot of sophisticated investors, they're doing their own kind of metrics anyway to like back out things for their own purposes and they understand like capitalized software for example, or leases and they're kind of doing their own kind of measurements or KPIs for their investment also.

Yeah.

I mean, at the end of the day, when does a company grow up?

Because you've got to do what you've got to do when you're building a business.

They don't have time for all of this.

So it's just, it's just part of this process of growing up, isn't it?

And the information in that system, I mean if you're trying to build a business, yeah.

You might be focusing on margin or income and, and thinking, right, we just got to get this thing working.

And possibly not having the best systems isn't that great.

But I don't know, it's a sort of.

The most important thing I would always say to someone is get your bookkeeping right, you know, get it at least accurate the information in the system, isn't it?

You're then that next Layer above, which is when you're dealing with an auditor, they'll need a bit more than a number, they'll need an explanation, they'll need a trail, they'll need to understand exactly how you got here and why you got here, that you can sort of provide all of that context.

So it's a, you know, whether you're trying to raise money or you're trying to deal with that order, it's just this sort of process.

And I guess the US gap one is just a bit bigger of a bump in the road.

You know, if you were just a UK business, you would be get your bookkeeping right, make sure that's right.

Do UK Gap, keep it simple.

You know, UK Gap is certainly easier than ifrs if we have a client.

I mean, by the way, if anyone's listening to this and people are like, oh yeah, they said we should move to ifrs, it's a major extra effort.

You know, if we're doing a company's account, you know, you're talking about doubling the cost of doing it.

It's a much longer, more complicated standard.

You know, the UK standard is quite practical, to be honest, and a bit more light.

So someone can, you know, flippantly say, we're going to move anything to ifrs.

That's, you know, that's quite a big move and you need to, need to have to do that because as an investor.

So I think it's the power of the US market, isn't it?

The power of the sort of the amount of money in the US and the amount of British companies and European companies that end up becoming or having major U.S. investors.

You don't really have a choice.

But this is a major step of growing up.

This is a, a big step forward, as it were.

Is there a step after this?

I mean, being public in the us, so you have a lot more.

Even just following US Gap, there's an other disclosures you have to make as a public company.

So that of course comes with a lot more scrutiny.

And do you.

Do you find any accounting systems are better than others?

Does it make any difference to you what accounting systems people are using?

I myself tend to be pretty system agnostic because what I do is already so niche.

If I said I was only going to work with a company that was in like netsuite, for example, even really narrow down the list of companies I could work with.

But I do see that typically when I'm coming in because of some transaction, there's a lot of other transformation going on in the Business, and probably the one that closely follows the GAAP conversion would be an ERP implementation where they've been on like a zero or something, QuickBooks before.

And now that you're dealing with multi GAAP, multi currency having to do proper consolidations, you need to eventually step up to something a little bit more sophisticated that can handle.

Yeah, usually it's NetSuite, although someone told me NetSuite's not doing very well the other day.

Or, you know, netsuite Sage.

There's a whole bunch of them out there.

Yeah, yeah, yeah.

How long does this still take?

It really depends on how many entities and locations you're dealing with.

If you've had acquisitions in the past, that adds a lot of complexities.

I would say typically between three and six months.

Although the way I work, I have the ability and to use time as a point of leverage to say, okay, if you need it done in six weeks, I can do it for you, but it's going to be more expensive.

Whereas if you're coming to me early and you've got enough time and you are okay taking like six months, let's kind of slow things down.

It's cheaper.

So, you know, I think you have different ways of working this, but the earlier you can address it, definitely the better.

Someone is a rule of thumb.

If someone says, oh, you need to do us gap now.

I mean, they have to have a reasonable sum of money, don't they?

I mean, not just for your fees or whatever.

It's like, this is not something you can do without fairly deep pockets, isn't it?

You've got to be, what, happy that you're going to be spending a hundred thousand dollars a year on finance, you know, support or something like that, isn't it?

Or.

Yeah, yeah.

I mean, you need a team of four or five people.

You're talking of, you know, do you see?

Is there any sort of rule of thumb?

Like if someone's saying, oh, we might do us gap, but you're like, well, you're not making Money, there's only 10 of you.

It's not going to happen.

You know, you can't afford to hire five people to do the accounting.

It really depends on the industry, I guess.

Normally I work with a lot of tech companies where, because I'm not really a fractional resource, I'm not staying embedded in the business.

I'm just coming in more on an advisory project.

Do you think?

And then you're out.

They typically need like three to five people on the finance team because I'm still needing to kind of leverage.

That's the thing.

You get information and train them.

Yeah, I know these are stupid rules of thumb, but it's a bit like if you haven't got three people in your finance team, you know, just saying you're going to go to US Gap, it's like.

Well, you might actually, if you only got one person in your finance team, you might need to hire a couple of people first.

You know, the level of reporting, the level of everything is going to be so much larger.

Yeah.

Although I'm working right now with a company in the Nordics that is in the biotech space.

So they're pre revenue and they're looking to list in the US and they have basically like a CFO who does the bookkeeping and that's it.

And they probably will need to hire somebody after they go public or keep me on on some sort of fractional basis.

I think in that situation their business is pretty simple because they're not making revenue yet, they don't have inventory, that type of thing.

So there can be situations where you can get by on a much leaner basis.

But like a bigger operating company, what's.

Really complicated when it comes stock, I.

Guess, assets, is it, or yeah, like inventory manufacturing.

Yeah, yeah.

Okay.

And IP or not so much, it can be.

Especially sometimes when you have a lot of subsidiaries and you're like moving the IP around and like playing with intercompany like transfer pricing, where the license sits, where you get the revenue and kind of how the costs are moving, then that's more, you know, they're setting that up from a tax perspective usually, but it adds some level of complexity.

I mean, like I said before, a lot of intercompany stuff kind of eliminates out when you do consolidations, but.

But when you're dealing with ip, that's usually indicating that accounting is more complex.

Also if you think about like intangible assets, do we need to capitalize this?

Have we acquired ip?

Did we develop it ourselves?

All these questions come up.

Do just transfer pricing come into your role?

You're not going to advise on it, but are they required to have done that for us, GAAP or anything?

Not for US gaap, more for like the irs, I would say.

And US is more strict on transfer pricing, I think.

I mean, I'm not a tax person, but yeah, they're typically.

Usually have gone through a transfer pricing exercise already by the time they bring me in because they have at least somewhat set up the structure already.

So they've had to have an idea of like how the costs and the revenue is going to move around.

If people in America don't publish their accounts publicly, are they in all sorts of shapes?

They just follow IRS rules basically and then they do whatever they want internally.

Like normally speaking, are people even following US Gap?

If you took a US business they.

They're filing with the irs.

It's not like Britain where I've got to put them on company's house.

I've got to use ifrs, I've got to follow the standards.

They don't publish their account.

So you do whatever you want.

Do you?

Well it depends.

Like if you have debt or equity, you probably have investors that want you.

To go back to.

You've got a stakeholder.

But if you didn't have a stakeholder, people are just doing whatever they want basically.

Yeah, could be.

It could be the case.

I mean I.

When you're public of course then the records are public and I have ways being able to put together like peer company listings and looking at disclosures for what a comparable US public company is doing so that when there is optionality in the standard we can pick things that are closer to what your peers are doing.

That helps with investors as well getting comfortable.

Is there any other tech or anything anyone needs?

Any other systems other than they might upgrade their erp?

What does ERP stand for?

It means Enterprise Resource Planner.

It just means accounting system to me.

Something like that.

Yeah.

I think ERP is definitely the most common one.

Could even be especially if you're a public company, more of a financial reporting tool like a workiva to actually build the financial statements themselves.

It's a good workivo.

Yeah.

Where you can kind of sync up your consolidation to your financial statement schedules and being able to populate things and have all the controls around that.

Have you ever seen anyone just using spreadsheets still?

Is that possible in uscal it is.

This just can be very complicated and onerous.

So it's typically if a company hasn't done an ERP implementation before they brought me in, I'm typically helping them through the first US GAAP consolidation in Excel and then they go off and after the fact they do the implementation.

Is AI coming in useful in any way?

Not so much.

I use it a bit myself because I'm a one woman show and you know got to run my business and do content and all that kind of stuff.

But from you know asking it differences in accounting standards it's not great.

I do more of my work is writing than calculations writing Accounting policies, writing accounting memos where it helps from like a writer's block situation to just kind of quote unquote, put pen to paper and kind of have something there.

But I end up kind of changing the actual conclusions or the analysis because it doesn't understand the accounting.

It's just helpful to actually get the words there because then I can go in and change it myself.

But yeah, it's, it's a real two, one step forward, two steps back, isn't it?

It's like, yeah, it gives you this thing and it sort of feels like, oh yeah, this is good.

But then you end up trying to rearrange that and you almost, sometimes you almost just feel like I should have just written this myself.

But some of the blurb is good, I guess.

Yeah.

And maybe the mechanics have changed a little bit.

But when I first started playing around with this and I don't have the impression it's changed much when you ask it, especially differences between ifrs and US gaap.

What it does is it goes and looks at these big four guides of 400 page PDFs that explain all the differences that PwC publishes.

But the problem with the LLMs is it's just taking words like in close proximity.

So a lot of the times it actually gets the differences backwards to say like, oh, US GAAP allows this, IFRS does not.

Where it's actually the reverse because it doesn't really understand, just it looks at just the location of the words basically.

So that can be very dangerous then.

Yeah, the constant help and battle with it all, isn't it really?

And how much does this.

What you know, how.

So we're talking about sort of people power.

You've got to go through a process.

It's gonna, you're gonna need a lot of the founders time, are you?

I don't really work so much with the founders.

It's more like the finance team because like I said, there's typically a team in place.

We're talking proper money coming on.

They've probably got a couple of companies in different countries.

They're probably turning over 20 million or something minimum or, you know, reasonable size business.

Okay.

Is it disruptive, do you think?

For the business it can be.

I try to do as much of my work in the background as possible.

And you know, I think I've taken the best bits out of my time at PwC and kind of left the worst bits behind so that I can coming in with a team of 10 people and sitting in meetings for eight hours a day really.

So what they used to do.

Yeah.

You know, it can be a thousand pounds a person.

Yeah.

And I think that I'd rather do as much work in the background as possible.

And sometimes I walk companies through the entire process and I'm very transparent about it to say this is potentially some of the work that your team could do to help get my fees down.

Essentially, if you kind of do some of the documentation for what you're doing currently and then I can just come in as the real value of my expertise in layering in the U.S. gAAP, explaining the differences, putting together the workshop apps for you so that the one that would be, I guess, a little more disruptive to the business if they want to leverage their team and save on the, the fees.

But of course I can come in and just do the full thing.

A to Z, let's, you know, take it away from PwC.

But why do the big four.

I go to meeting sometimes and they have like 10 people there.

Why do they do that?

It's not.

Is it just about clipping the ticket or no.

Or is it like.

It's just how it's structured?

Is it.

I think some.

It's just how they're structured.

It's less about the number of people, it's just more about, you know, when I talk about the process, the gap conversion from A to Z, they have to come in and do that entire process because otherwise they can't justify it from their fees and their overhead if they're not taking on the entire project.

Whereas I break it down into very discreet pieces and I say, I'm just going to do from A to C, maybe you do D and E and then I pick it up again type of thing.

So there, there's a lot more flexibility when you don't have a large overhead in that structure.

That's kind of hindering your, I guess,.

Flexibility to have sympathy for them.

As we've grown as a business, you end up with more layers because you can't be wrong so much.

And I realized for the Big four, they can't be wrong.

They can't write a tax document or they can't write a thing and it's wrong.

So what that means is you need lots of oversight.

Whereas in a small accounting business, when we used to be a little accounting business where it's just you and the client, you'd answer it, you do the work, you'd get it wrong sometimes, but most of the time it doesn't matter because most of the time you've got it wrong.

A Little bit.

But the tax man doesn't do an inquiry.

Do you know what I mean?

I. I was thinking about it the other day and I was thinking as we've got bigger, it's.

It's this inevitability that as you become a bigger business, you have to be a lot better at what you do and making mistakes a lot less acceptable.

I mean, if you go to PwC or any of the big four and you're praying those kinds of prices and they wrote a document that was just wrong, it's not going to be any sympathy from the client.

You know, it's not a small accounting business.

So I've made a mistake, John.

Sorry about that.

We'll fix it for you.

You know, it's not.

You're not in that world.

You're like, you're bwc.

You've got to be right about everything.

Yes and no.

I think that accounting has a lot of gray areas.

And so what I'm trying to do, I would say like 50% of.

When I come in and I'm writing more complex accounting memos, there's some optionality that, you know, you're very close to this, but it could go this way.

And I'm trying.

What I am typically trying to do is make as many arguments as I can to get them to a position where they're following what they're doing currently as closely as possible because they don't have to make as many changes.

But I of course give the caveat like, well, the auditors might come back and not agree with this point, this point and this point.

So there's a chance that you're still going to have to change it.

And it's not so much that I'm okay with being wrong as that I'm trying to be on their side because I'm not an auditor.

But I'm again upfront with them about the differences.

But when I have, you know, done certain projects where to some extent Big Four, Big Ten have already been involved in some form of gap conversion or kind of dabbled in the areas that I'm helping them with, I wouldn't say that they're necessarily even doing a better job than me or getting things more correctly.

And I think that is just maybe comes down to the fact that this is like the, basically the one and only thing that I do.

So I can do things that are very scalable for me but also repeatable.

And I have worked across so many different audit.

It sounds like you're giving opinions, which is what's Much more valuable to people than we try and do is in.

You've got to be practical, as you say.

It's so much great gray in tax and accounting.

Everyone thinks it's numbers and it's mathematics.

It's not.

It's mostly words.

Our job, you know, you can go and read it.

If you've never read one, go and have a laugh and read FRS 102, look up, I don't know, stock and how you value stock, you know, a lower of costs or net realizable valuable and then whatever you read this, you know, it sounds slightly like mumbo jumbo, but it, they're just words trying to define something.

You know, like the example I gave before, probable flow of economic benefit.

It's like that's the sentence, that's how you got to judge whether to recognize something.

It's not like it's not mathematics, is it?

It's words, it's judgment.

And therefore you, you can, you can if you're willing to give opinions, which I think the big four again struggle with for some reason though maybe it's the disclaimer bit, you know, they end up writing big reports, isn't it?

Whereas you as a sort of single practitioner or, you know, we can, is, we can sit there and just say, look, you know, John or Jane, you know, I think, I think it's roughly in the right area.

It could go this way or the other.

But I, you know, you've got it, you've got some logic to why you're there, so let's stick there.

Yeah.

And yeah, you know, if the tax man or the auditor want to have an argument about it, let's have an argument about it.

I don't know the answer.

They don't know the answer.

It's just, it's a debate really, isn't it?

Yeah.

Are there any, any classic mistakes, anything people need to do before they call you?

You ever walk in and think, oh God, well, maybe all the time, not so much mistakes.

But like I said, I think the more data you can have around your transactions and the more documentation in place you have around what you're doing currently, you could be following some made up accounting standard if you want this just in your head.

But if you have it down on paper, that's at least a big improvement to having somebody like me come in to get a lay of the land to be able to then advise how you move to a new standard.

That's such a thought, isn't it?

Because all of you can, you can set your own accounting standards within the rules, can't you?

And you're right, people may have been building a business for years as a business person saying, well, I recognize it like this because that's quite often when you talk to an entrepreneur, they'll be like, they will focus on making money if they're good at it, won't they?

And they'll say, well, there's no point recognizing that because that's misleading and ignore that.

Like you saying, like sophisticated investors, that's how they work it out, might not fit the standards, but at least if they've written down their theory, that allows you to say, okay, I can see where you got to.

Yeah.

Do people through this process become.

Does the business become culturally more American?

Does it have a deeper impact?

I don't think so, because converting to ifrs is kind of similar to converting to US Gap, I would say from the perspective of bringing more sophisticated.

Do you ever deal with ifrs?

Yeah, I do both conversions.

You do both?

Which do you prefer?

If you had a choice as a client, had a choice which to convert, which I doubt they ever do, would you ever recommend one over the other?

I think if you have a choice as a European company, you're better off using ifrs because it's good, you can.

Use it in Europe as well.

But yeah, you typically don't have a choice.

And I would rather focus on US GAAP conversions and ifrs.

But that has less to do with, with the technical accounting and more just from a business perspective that there are far fewer people in Europe with US GAAP expertise.

So I feel like my work is then more valuable and clients are willing to pay me more for that.

Whereas when I do IFRS conversions, I do them and they're fine.

But I feel like there are other people that I'm kind of competing with, whereas I really don't have as much competition.

There's one more out of interest though, is IFRS more pedantic than USCA force?

People love to say that IFRS is principles based and US GAAP is rules based.

And I absolutely hate it when they say that.

Oh, really?

I've never heard them say that.

Okay.

Because it's all rubbish.

At some point, it doesn't matter if it's a principle or rule, you have to make a decision and stick to it.

So even if you say, what's the.

Difference between a principal and a rule, really, I guess that there's a concept rather than a law.

Yeah, but even with the concept, at some point you have to make a specific decision.

On how you're going to recognize something.

And even though I us GAAP is maybe like, quote unquote longer than ifrs, I don't know if that's actually true.

But even if there are more rules, you still have a lot of optionality within those rules.

So there's still a level of like, judgment you have to apply regardless of what standard you're taking.

And like I said, it can help to look at peers and what they're doing or what you're doing currently.

Have you ever seen those stats about the longer accounts of.

This is in the uk, the accounts are becoming longer and longer and longer and longer unless.

And this is the red.

You know, 70 years ago it was P and L balance sheet and now they get longer and longer and there's this amazing stats.

You know, I don't have them in my head, but you know, PLC's pumping out these hundred page reports.

It's like how much of them actually read.

It's like nothing.

You know, I mean, that's.

And I mean, it's a topic for a different day that we might do.

But it's a bit like people who don't really understand financial reporting and don't understand accounts and stuff, they're like, oh, you know, what should I be looking at?

You know, and I can tell you some of the notes are helpful, some of them, you know, you can find out how many employees there are.

You can get a bit more detail if you know what you're looking at.

But I mean, but ultimately most people just flick to the balance sheet, you know, and flick to the P and L. And it's a bit like if you want to tell whether a set of accounts is right, if you're, if you're, if you're in a business and you're thinking, what should I be looking at to know whether my accounts are right?

Like, you know, old rule of thumb, look at the balance sheet.

You know, do you understand what is on your balance sheet?

Those are your assets, those are your liabilities.

You know, sort of work down that, isn't it?

But I guess the question I'm leading to is, do you?

Yes.

You end up giving a deeper framework of how people got there and everything.

But do you, at the end of this, do you get an uplift from everyone about they understand their accounts more or it's really, it's more just you're delivering a different set of processes for another regulator, for an investor.

I think that there's a possibility that they can understand their accounts more.

But that's again, has little to do with the actual standard itself and more to do with the processes that you're building to develop more supporting files and schedules to be able to make those adjustments in the first place.

That then is giving an extra level of granularity essentially to your transactions that you maybe didn't have before, as opposed to like, oh, because we're making this adjustment under US gaap, we better understand the way that the businesses is working.

But for example, when we were talking about the revenue recognition example before, if you have to go through all of your contracts and look for performance obligations and how you should be recognizing those.

Yeah.

You're probably getting a better understanding of the business because you're having to document it in more detail.

And do you think, does US Gap make companies look more conservative, aggressive or anything like that?

It really depends.

It's hard to say one way or another.

Could be, could be anything.

Yeah.

What else do you feel about when you do, when you, after all these years of looking at it and looking people expand to the U.S. is there any more general advice that you have for companies doing that in terms of how they expand?

Is there anything you see, sort of learn over the years that you know, other than you've got to do US Gap?

If you've got someone serious involved?

You know, I, I, I also, I also feel X, you know, that you should always use an ink.

You should, you know, you should never, you should have a good board.

Is anything else out of interest in practice?

Well, nobody is going to convert to US Gap because they just feel like it.

It's usually a business decision because you're bringing in big investors.

And so in most situations, I would say 90% of the time I'm coming in after some sort of agreement has already been signed.

And then they're like, okay, we just signed with this investor.

Now we need to do US GAAP within six months.

And I think to some extent, the earlier you can do this, the better.

And I'm not advocating that people just proactively randomly convert to US GAAP for like no good reason.

But if you're in the situation where you think you're going to bring in a US investor or you want to try to exit to the US at least understanding, like qualitatively what are the differences you're going to be dealing with can go a long way to be able to speak with investors and show that you've got a good handle on the situation.

So I think just educating yourself around the differences, even if you're not going through.

And like producing full US GAAP statements can help you in diligence, for example, to show that you can handle this going forward and you don't need new people on your team, that type of thing.

Is the US ever going to adopt ifrs?

They've been talking about that like ever since I was in college.

So I kind of have my, my doubts.

Okay.

Really?

Although that was very recently, I'm sure.

But yeah, I mean.

And does US GAAP change a lot regularly?

Yeah, I would say there's usually at least a couple updates a year to standards.

I think especially in today's day and age, the way that tech's evolved and AI and all stuff.

There's a lot of things that like, don't necessarily, I don't want to say make a lot of sense, but you have to just update the way that you're dealing with accounting to keep up with all the changes just in the industry itself.

I mean, and why, I mean, if the uk, if the US doesn't go for US gaap, then is it ever going to happen?

Do you know what I mean?

Is it like, sorry, if the US is like ifrs?

If they're not going to adopt ifrs?

IFRS is never going to become truly international, is it?

It's just sort of stuck as a sort of idea for everyone except the US the biggest economy in the world.

And I mean, like I said, I do IFRS conversions and this Nordic company that is going to list in the US is converting to IFRS and not US gaap.

And that's because they're still going to be a foreign entity that's listed.

So they're allowed to do it when they're a foreign holding company.

Okay.

And you can list in America.

Yeah, there's certain rules and if you meet those rules, then you qualify as a foreign private issuer and then you're allowed to.

What were they listing on on the nasdaq?

Oh, on the nasdaq.

Okay.

I mean, are there any good war stories or.

I just finished working with the company.

It's a Austrian merger with the US Biotech and they're doing a US GAAP conversion.

And the funny thing is that they actually already did a conversion to ifrs before because they had a big international investor and this is almost a situation where like there end up being too many cooks in the kitchen because they had done a very high level IFRS conversion just on the income statement.

And now they had to do a more detailed US GAAP conversion that's eventually going to get audited.

So they had PwC involved.

And when I came in to do my scoping, I kind of agreed because the CFO was trying to reduce the fees.

Like, okay, well, we can make these assumptions.

One of the big ones being I'm going to rely on a lot of this IFRS adjustment work that they had already done, and it was a Big Ten firm that had done this IFRS conversion.

And I'm not faulting them, I'm not saying that they did anything wrong, but because there was a difference in the materiality and what those.

The GAP statements were being used for.

I couldn't really use any of the IFRS conversions because they had done them at too high of a level.

They didn't have all of the, like, audit trail behind it and enough granularity.

And a lot of it was around assumptions for what they were using for discount rates and things like that.

That.

That can be like a pit that you can fall in.

Sounds like they did bugger it up, though.

We're not naming the firm.

I mean, you're being polite.

I mean, that sounds like they got it wrong, didn't they?

Or they got it.

Like I said, there's a lot of gray area.

They got it as right as they needed to for their purposes, but they obviously didn't take it further because it would have cost more money to do that.

Right, Right.

I guess.

I guess it's the.

Some of the questions people need to ask themselves in their business is, are they definitely going to end up in the US raising money?

I mean, so many.

So many companies do end up listed there or raise money there.

If that's on the path, then maybe the step to ifrs might be a bit of a time waste in the meantime.

Could be.

Could be, yeah.

Well, brilliant, Katrina.

Thank you so much for sharing this subject with us.

Where could people find you then?

LinkedIn.

I think I'm the only Katrina Nachi.

There, so she's spelled N A, C. C I. Yeah.

From Naples.

Katina Nazi.

Is anyone in your family who still actually speak Italian?

No.

It's like three generations removed.

It's outrageous.

Very good.

Thank you, Katrina.

Thank you so much for coming down.

If anyone need, if any.

Well, at some point, you may well hear the words we need U S Gap.

And now you know who to call.

So Katrina is definitely your us Gap Ghostbuster, if there's such a thing.

Always happy to chat.

Yeah.

All right, brilliant.

Thank you, Katrina.

And that's been this week's episode of Business without bs.

We'll catch up again soon.

Thank you.

Bye.