Research Article Open Access

Critical Elements of Foreign Currency Translation: A Worldwide Informational and Accounting Problem

Paul E. Holt1
  • 1 Texas A and M University, United States
American Journal of Economics and Business Administration
Volume 5 No. 2, 2013, 56-64

DOI: https://doi.org/10.3844/ajebasp.2013.56.64

Published On: 27 November 2013

How to Cite: Holt, P. E. (2013). Critical Elements of Foreign Currency Translation: A Worldwide Informational and Accounting Problem. American Journal of Economics and Business Administration, 5(2), 56-64. https://doi.org/10.3844/ajebasp.2013.56.64

Abstract

The purpose of this study is to describe and clarify the foreign currency translation problem and to suggest normative criteria by which various methodologies can be tested. The translation problem is presented as a set of four critical questions: (1) whether translation should be done, (2) what numbers to use to translate foreign currency accounts into the reporting currency, (3) what to do with the imbalance that results from translating different accounts with different numbers and (4) what, if anything, to do about changes in price levels. Several normative criteria are recommended for evaluating of various translation methodologies, some related specifically to earnings quality. It is further suggested that when empirical research is done to test various translation methodologies against normative criteria, (1) no translation at all and (2) price parity methodologies should also be tested.

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Keywords

  • Currency Translation
  • Earnings Quality
  • Price Parity