Translation of Financial Statements
Dalthan Medeiros Simas
Universidade do Estado do Rio de Janeiro
Otavio Ribeiro de Medeiros
University of Brasilia
This paper has the purpose of surveying and critically analyzing the effects of accounting procedures which are closely related to groups of companies operating multinationally. These are the methods for translation of financial statements, e.g. the Temporal and the Closing-rate Methods, as far as those methods are embodied in accounting standards which have been either recommended or adopted by countries such as the UK and US. We conclude that with regard to changing prices, General Price Level Accounting is the best option. As for exchange rate fluctuations, the Closing Rate Method should be preferred over the Temporal Method, the order being owed to the greater relative importance of foreign operations which are carried out in an independent way, vis-a-vis those which are mere extensions of the parent company's. Costs may also have played a part towards the choice. However, the main conclusion that can be drawn is that convenience of use, for both the accounting profession and report users, seems to have been the determinant factor.
Number of Pages in PDF File: 25
Keywords: Financial statements, exchange rate, changing prices, accounting standards
JEL Classification: M41, M44, M47
Date posted: February 2, 2005
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