Topic
Functional currency
About: Functional currency is a research topic. Over the lifetime, 43 publications have been published within this topic receiving 288 citations.
Papers
TL;DR: In this article, the authors examined whether the SFAS No 8 rules produced relevant information for valuing US multinational firms, and whether the results reported under SFAS no 52 were more valuation relevant than those reported under No 8.
Abstract: The accounting method in Statement of Financial Accounting Standards (SFAS) No 8 for restatement of a foreign operation's financial statements denominated in a foreign currency into the parent's currency equivalents for inclusion in the parent company's financial statements was severely criticized by market participants and managers Its replacement, SFAS No 52, represented an attempt to improve on the methods of SFAS No 8 This study examines two questions: did SFAS No 8 produce relevant information for valuing US multinational firms, and are the results reported under SFAS No 52 more valuation relevant than those reported under SFAS No 8? Valuation relevance is studied because the Financial Accounting Standards Board (FASB) has stated that relevance is an important criterion for choosing among alternative accounting methods Considered collectively, the results suggest that the rules in SFAS No 8 produced a poor accounting measure for valuing US multinational firms, and that the introduction of SFAS No 52 has resulted in a significant improvement in the valuation relevance of the accounting numbers associated with the restatement of a foreign operation's financial statements However, this improvement applies only to the subset of firms that designated a foreign currency as their functional currency (ie, switched to the current-rate method) and not to firms that designated the dollar as their functional currency (ie, as if they still reported under SFAS No 8)
56 citations
Posted Content•
TL;DR: In this paper, the authors examined the relevance of the results reported under SFAS No. 52 compared to those reported under the original SFAS 8 and concluded that the former measure produced poor results for valuing US multinational firms.
Abstract: The accounting method in SFAS No. 8 for restatement of a foreign operation's financial statements denominated in a foreign currency into the parent's currency equivalents for inclusion in the parent company's financial statements was several criticized by market participants and managers. Its replacements, SFAS No. 52, represented an attempt to improve on the methods of SFAS No. 8. This study examines two questions: Did SFAS No. 8 produce relevant information for valuing US multinational firms, and are the results reported under SFAS No. 52 more valuation-relevant than those reported under SFAS No. 8? Valuation relevance is studied because the FASB has stated that relevance is an important criterion for choosing among alternative accounting methods. Considered collectively, the results suggest that the rules in SFAS No. 8 produced a poor accounting measure for valuing US multinational firms, and that the introduction of SFAS No. 52 has resulted in a significant improvement in the valuation relevance of the accounting numbers associated with the restatement of a foreign operation's financial statements. However, this improvement applies only to the subset of firms that designated a foreign currency as their functional currency (i.e.., switched to the current-rate method) and not to firms that designated the dollar as their functional currency (i.e., as if they still reported under SFAS No. 8).
55 citations
Book•
1 Jan 1976
39 citations
TL;DR: In this paper, the authors used an equity valuation model to investigate the extent to which SFAS No. 52 unrealized foreign currency translation gains and losses are reflected in levels of equity security prices.
Abstract: This study uses an equity valuation model to investigate the extent to which SFAS No. 52 unrealized foreign currency translation gains and losses are reflected in levels of equity security prices. Equity security price is used as the dependent variable in our selected model. Book value of equity (adjusted for the cumulative translation gain or loss), earnings, and cumulative translation gains and losses are used as independent variables. Our results indicate that, generally, translation gains and losses are valued, but losses have a greater impact than gains and the value seems to change over time in setting the levels of equity share prices of USbased MNCs. On a pooled basis, the results are clearly statistically significant, although the statistical significance of the results appears to vary with the annual time period examined. Our results are consistent with the SFAS No. 52 intention that these gains and losses be treated as unrealized as the net exposure is considered long‐term in nature for foreign currency functional currency subsidiaries. Our results appear consistent with extant literature suggesting that unrealized foreign currency translation gains and losses are directly valued ‐ although not dollar for dollar ‐ in a manner similar to earnings (i.e., unrealized gains are associated with positive equity returns and unrealized losses are associated with negative equity returns).
14 citations
TL;DR: In this article, a solution to a current problem in accounting for foreign currency hedges is presented, which is accomplished by an examination of the FASB Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivatives Instruments and Hedging Activities, as issued in June 1998.
Abstract: Auditors nowadays must be aggressive and involved in risk assessment and analysis. This paper identifies, analyzes, and recommends a solution to a current problem in accounting for foreign‐currency hedges. This is accomplished by an examination of the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivatives Instruments and Hedging Activities, as issued in June 1998. Multi‐currency accounting is recommended as an alternative to functional‐currency accounting. The information generated by the multi‐currency versus the functional currency (as advocated in the SFAS 133) accounting methods for using options as hedging instruments is illustrated. Multi‐currency accounting excels in its transparency. It more clearly provides information on the respective exposure positions of the hedged items and the hedging instruments as well as the notional amounts. Auditors’ risk assessment and analysis can now be effectively performed under this system.
12 citations
Related Topics (5)
Performance Metrics
| Year | Papers |
|---|---|
| 2021 | 1 |
| 2019 | 1 |
| 2018 | 1 |
| 2017 | 1 |
| 2016 | 3 |
| 2015 | 4 |