Financial management: Mind the GAAP
Dealing with a law firm merger inevitably has its problems, but when the firms in question are based on either side of the Atlantic, their managers will also be forced to deal with the discrepancy between the US' generally accepted accounting principles and the methods used in the UK. Chris Young reports
The main technical obstacle to a transatlantic merger of legal firms is often that the UK firm will produce accounts on an accruals basis, whereas the majority of US firms account on a cash basis. Under the cash basis, revenues are recognised only when cash is collected and costs are recognised only when they are paid. Accruals accounting recognises revenue when earned, which is often before the cash is collected.
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