Conversion of Values to One Money Unit in Consolidation Process
Emergo - Journal of Transforming Economies and Societies, Vol. 11, No. 4, 2004
12 Pages Posted: 16 Nov 2005
Abstract
Value of assets and liabilities of an international capital group has to be expressed in chosen one only currency. The common procedure relies on exchange rate application to value assigned in valuation process consistent with country standards to the reported items. These conversions of value in country currency to reported currency require some theoretical background, justifying applied procedure.
The paper shows the theoretical indigence lying behind the standard of translation presented in the International Accounting Standards and Financial Accounting Standards. The example of two companies from the USA and Poland, belonging to the same international capital group, reveals the fact of improper use of the exchange rate to compute the assets value in consolidated statements. The law of one price, which says that the price of the same goods on the different markets must be the same, constitutes the fundamental of the present procedures. But the empirical data gained through the research shows that in case of considered companies the law of one price works very poorly. The reason that Law of One Price fails can be found in the difference of wage productivity in two tested countries, which means that if the productivity is similar enough, the results would be acceptable and convergent with the law of one price.
Keywords: translation, GDP, GDP per capita, conversion, money, money unit
JEL Classification: M40, M41
Suggested Citation: Suggested Citation
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