Towards the Best Procedure of Translation

Abstract

The research presented in this paper is an attempt to solve the problem of translation using the PPS (Purchasing Power Standard) theory. The proposed methodology uses PPS to eliminate inconsistencies that exchange rate brings into consolidated statements. Economic volume aggregates in PPS are obtained by dividing their original value in national currency units by the respective PPP. Thus, calculating consolidated amounts in the research practice is based on dividing, one by the other, baskets of identical goods and services expressed in prices of both countries. Therefore the ratio implicating the above mentioned calculation can serve as the medium of translation. The main proposition of the paper is that in case of countries with unequal productivity ratios, the second, alternative method provides true and fair view of the financial statements, rather than the method based on the exchange rate.

Keywords: exchange rate, purchasing power standard, translation, consolidation, multinational enterprises

JEL Classification: M41, M44, M47