Are You Euro-Fluent?
EXECUTIVE SUMMARY * IN JANUARY, THE EUROPEAN UNION introduced a new currency named the euro. By 2002, it will be used by at least 11 EU nations, whose national currencies will pass into history. * TO HELP PEOPLE GET ACCUSTOMED TO the euro, the European Commission allowed for a three-year transition period (January 1, 1999 to January 1, 2002) when companies can enter into and settle transactions in the national currency or the euro, or both, and can process and display transactions in both currencies. * TO PREPARE FOR TRADE UNDER THE MONETARY UNION, U.S. companies must update their information systems, their internal and external financial reporting and assess the impact of the new currency on all business functions. They also should develop a practical conversion strategy that identifies all software and data affected by the new currency. Ignoring the changes taking place in Europe could cost your company or client business. * AS OF JANUARY 1, 1999, DIRECT CONVERSIONS of national currencies no longer are allowed. The conversion as of 1999 has to be made through the euro (triangulation)--for example, Dutch guilders to euros to French francs, using the fixed conversion factors for guilders and francs to the euro. Euro-related disclosures in U.S. financial statements may be required for U.S. companies conducting a large volume of business in Europe. * CPAs ALSO MUST STAY ON TOP OF accounting requirements, such as accounting for conversion costs, the effect of the euro on U.S. taxation and new legal implications, such as paying for contracts in a national currency when that currency no longer exists. * U.S. COMPANIES WITH EURO-COMPLIANT systems are in the best positions to respond to the challenges of doing business in Europe. They can benefit from Europe's strong economy by reacting quickly to price competition and building market share. The implications of Europe's new currency for your company and clients. In January, the European Union (EU) introduced a new currency named the euro. By 2002, it will be used by at least 11 EU nations, whose national currencies will pass into history. This immense change from a disparate--if distinguished--group of trading nations to a unified financial force will have big repercussions here. Some large U.S. companies, such as banks and insurance companies, began preparing for the currency transition shortly after the Treaty on European Monetary Union was ratified in 1993. But the euro will affect more than just large companies--any company that invests directly in Europe or that imports products from or exports them to Europe must tailor a euro strategy if it wants to stay competitive. To prepare for trade under the monetary union, U.S. companies must update their information systems, their internal and external financial reporting and assess the impact of the new currency on all business functions. CPAs who operate as CFOs, COOs or controllers of such companies may be responsible for their companies' euro conversion efforts, while CPAs in public practice must help their business clients manage the complexities of currency conversion, ensure compliance and reporting requirements are met and reassess tax strategies. Ignoring the changes taking place in Europe could cost your company or your clients business. Know what the euro is and what you need to do to become euro-ready. ONE EUROPE, ONE MONEY The EU launched the euro last January in accordance with the 1993 treaty, and 11 nations that joined the European Economic and Monetary Union (EMU)--known as Euroland--fixed their national (legacy) currencies to the euro. Euroland includes Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. In January, the legacy currencies of these countries became subunits of the euro Oust as cents are subunits of the dollar). Four of the 15 member nations of the EU are not taking part in the monetary union--Britain, Denmark, Greece and Sweden. …