Accounting for Financial Analysis.

Abstract

The article presents an exposure draft on the foreign currency translation proposal in the United States. The Financial Accountant Standards Board (FASB) has issued its exposure draft on "Son of FASB No. 8" and it is good news for multinationals. The FASB exposure draft on foreign currency translation, released on September 2, calls for use of the "all current method" and exclusion of most translation gains and losses from reported income. Because translation gains are excluded, there is a strong probability that the 1981 reported earnings of multinationals will not reflect the volatility they have in the past. In addition, many companies will probably discontinue the expensive hedging programs undertaken to avoid the impacts of FASB No. 8. The exposure draft is long and, unfortunately, lacking in illustrative examples. The functional currency distinction is not consistent and seems unnecessarily hair-splitting. Nevertheless, considering the complexity of the problem and the lack of any obviously "correct" solutions, it is not a bad job. The FASB has called for hearings in December. With three dissents already on the record, the debate will probably be lively.