The Conversion From US-GAAP To IFRS And Transfer Pricing: Irreconcilable Differences

Abstract

Purpose - This paper aims to discuss the challenges the switch from US GAAP into International Financial Reporting Standards (IFRS) pose multinational companies (MNCs); to investigate the transfer pricing of intangible assets with several important trends in the global market; to analyze and discuss the impact of the conversion on intangible assets’ transfer pricing decisions; and to make recommendations to help alleviate problems associated with transfer pricing when switching to IFRS. Design/methodology/approach - The author addresses the conflicts between using the International Financial Reporting Standards and the transfer pricing policies as the multinational companies make the switch from using GAAP to the IFRS and propose some remedies to the related problems. Findings - Transfer pricing systems of MNCs should be carefully reviewed and updated because financial statement information is used and comparability of that information between tested parties and companies to which they are compared is critical to achieving a reliable analysis to help MNCs achieving their global strategic objectives. Research limitations/implications - This research focused on the significant implications on the American MNCs’ transfer pricing strategic decisions resulting from the adoption of the IFRS in general. Further research is still needed to examine the impact of the conversion process on both foreign subsidiaries and the MNC as a whole in different industries. Originality/value - The paper addresses an issue of significant implications on transfer pricing strategic decisions of intangible assets beyond financial reporting as a result of converting financial statements from U.S. GAAP to IFRS.