International organizations continue to see growth opportunities in the United States of America (U.S.) as they expand their global footprint. Often, entities find strategic business advantages in creating subsidiaries with a physical location in the U.S.
Establishing the accounting structure is an early step in setting up a U.S. entity. As part of this process, many global organizations are surprised to learn that there are no statutory audit requirements. This is significantly different from other accounting jurisdictions, which may have statutory reporting requirements at the federal or regional levels.
Similarly, while U.S. Generally Accepted Accounting Principles (GAAP) is the most common accounting framework, there is no required book accounting methodology in the U.S. for privately held entities. The U.S. also offers additional flexibility by allowing private companies to choose their fiscal year-end.
When are Audits Legally Required in the U.S.?
Entities are generally required to have audits under the following circumstances:
- Entities with publicly traded equity or debt
- Entities that expend over $1,000,000 of U.S. Federal awards in a fiscal year
- Entities with certain regulatory reporting requirements such as banks, credit unions or public utilities
These entities generally follow the U.S. GAAP accounting methodology, have their audits conducted under U.S. Generally Accepted Auditing Standards (GAAS) or Generally Accepted Government Auditing Standards and have certain public disclosure requirements.
Entities that do not require an audit at their corporate level may still need to engage an auditor to meet fiduciary responsibilities. This is common for entities that are sponsors of large employee retirement plans or health and welfare plans.
Why Privately Held Global Organizations Choose to Have Annual Audits
While it may not be legally required in the U.S., many organizations choose to have annual audits or reviews performed. Assurance services provided by independent accounting firms are often required by lenders to secure term notes or maintain lines of credit in the U.S.
Assurance services also provide additional oversight of entities in the U.S. where the Group consolidation occurs in another country. Generally, this is seen as a function of good governance, particularly with U.S. entities that grow to become a substantial portion of the overall global activity.
Assurance services also provide valuable feedback on the current internal control processes in place and comments are provided to management on best practices. As the U.S. does not mandate a particular accounting methodology, the majority of private entities elect to implement the methodology of their parent company. This could be the International Financial Reporting Standards (IFRS) or the local GAAP in their jurisdiction. The assurance function can also provide feedback on compliance with the Group accounting policies.
Finally, audits performed in the U.S. can be leveraged by Group auditors. Group auditors often are based in the country of the global headquarters and provide instructions to component auditors based in local countries. This process provides higher-quality assurance, a smoother process working with domestic teams, and additional support for the consolidated financials. Group audits following the International Standards on Auditing (ISA) can be appropriately designed by the Group auditor to comply with ISA 600 (Revised), Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors) under both IFRS or local GAAP accounting methodology.
What is Right for Your Business?
With so many factors to consider, entities should determine whether an audit of a U.S. subsidiary is required or will be necessary for group audit considerations in the near-term or long-term. Selecting the right firm with service offerings that can continue to meet future needs can provide enormous value to an organization’s U.S. subsidiaries.
How Can Schneider Downs Help?
Schneider Downs provides a full range of assurance, tax, and advisory services to international organizations. These services include audits under U.S. GAAS and ISA, tax compliance, transfer price studies, and valuations. We are experienced with working foreign organizations that have both established as well as new U.S. entities. For more information, please visit the Schneider Downs International Services page, Our Thoughts On blog or email us at [email protected].
About Schneider Downs International Services
The Schneider Downs International Services industry group is a dedicated team of professionals specializing in serving international companies. Schneider Downs helps clients take full advantage of all their international opportunities and can reach you and your business, no matter where you’re located around the globe.
To learn more, visit our International Services Industry Group page.
