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EXPLAINING INTRAPERIOD ACCOUNTING CHOICES: THE REPORTING OF CURRENCY TRANSLATION GAINS AND LOSSES
Author(s) -
Taylor Stephen L.,
Tress Richard B.,
Johnson Lester W.
Publication year - 1990
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.1990.tb00108.x
Subject(s) - currency , shareholder , accounting , subsidiary , audit , ex ante , business , economics , monetary economics , finance , corporate governance , multinational corporation , macroeconomics
Prior to the introduction of an Australian Accounting Standard relating to the treatment of foreign currency items, we find agreement among firms on the method of translating foreign subsidiaries' assets and liabilities, but no such agreement on the method of reporting the resulting gain or loss. The reporting choice represents an intraperiod accounting decision. We show that this choice is a function of the demand for ex ante optimal risk sharing agreements between management and shareholders, although auditor identity and firm size are also found to influence the choice of reporting method. We model the policy choice as both a dichotomous and a more finely graded three‐way problem, introducing to the accounting literature an experimental technique designed to test for the existence of any mutual dependence between alternatives.