Show Me the (New) Money
The euro made its debut with the new year, but its going to be a long introduction (see sidebar), giving residents in member nations ample time to adjust to a one-currency continent. Meanwhile, U.S. companies with overseas operations or trading partners should look at several issues, according to Anette W. Estrada, CPA, who works with international businesses at BDO Seidman, LLP:
- Since the transition period is relatively long, CPAs should note how quickly European affiliates and representatives make the switch. Companies not moving quickly may lose market share to those who make the switch now, so CPAs might want to advise clients with European operations to move to the euro as soon as possible. Some sectors are moving faster than others: The automotive industry converted as of January 1, 1999, for example, so a supplier who has not yet converted is in trouble.
- U.S. companies need to have flexible accounting systems to handle the euro as well as the legacy (national) currencies.
- Given the fact that the euro is expected to compete strongly with the dollar in the world markets, European companies may increasingly insist on denominating their transactions in euros. This will shift the exchange risk and cost of foreign currency conversions to the U.S. company.
Estrada did not anticipate income tax consequences, however, except for companies with certain straddles or hedges.
For the immediate future, many CPAs are concerning themselves with the specifics of the second point, above. Triangulation is the process of handling computerized monetary transactions during the launch period. For example, a company operating in France and Germany has to take a franc value, convert it to a euro, then take the euro and convert it to mark value. Does the firm and does the client have software that can handle this?
A complete, free source of euro information and help is available at the Web site of the Fdration des Experts Comptables Europens (FEE), www.euro.fee.be .