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Bulletin of Toyohashi Sozo Junior College 1997, No. 14, 97-116 97 1996. 12 1 426 2 3 6 7 A Research on Historical Changes of Accounting for Foreign Currency Translation in the U.S. Kazumoto IDO Toyohashi SOZO Junior College Keywords Foreign Currency Translation, Foreign Operation, Net Monetary Position, Profits Available for Distribution, Historical Perspective Abstract The subject of accounting for the translation of foreign currency financial statements has been widely researched since 1965. Much of this research to date, both empirical and theoretical, has been motivated by a recognition of the effect of foreign exchange fluctuation and translation adjustment. Currently, the Situational Approach is accepted in the field of international accounting worldwide, though this approach may not always be suitable. This paper reviews 19th century developments in methods of reporting the financial results of foreign business operations used by accountants in the UK. It shows that many of the methods of foreign currency translation which have been proposed by accounting regulators have a common origin in one method first developed in the 1890s. Moreover, while the methods proposed by accounting regulators have been applied to the translation of financial statements of foreign operations, the method from which they were derived was designed as a valuation technique for reporting the net monetary position of foreign operations in order to identify the extent of profits available for distribution. In conclusion, there is a need for research with historical perspectives to be considered when setting international accounting standards. Further, even if accounting standards are different, the disclosed translation adjustments should be mutually recognized.

98 1960 1960 60 60 Multinational Enterprise: MNE 70 80 90 Comparability UniformityHarmonization Mutual Recognition 1) profits available for distribution Ethnocentric, Parent Perspective domestic currency 2) 1960 3) 01 1985. 6 3 02 3 1 2 3 2 3 1984. 8 55 60 1980 47 48 03 1993. 3. 20 1 451 2311973. 11 101152 2 257 1976. 6 77 108

99 3 "Accountant" "Journal of Accountancy" "Accounting Review" 1950 48 48 1950 366 1993 1,919AIA 42 80 1933 1996 5 1,613 1891 Accountant H.A.Plumb 4) 1960 20 20 1970 Financial Accounting Standards Board: FASB International Accounting Standards Committee: IASC 04 H.A.Plumb, "The Treatment of Fluctuating Currencies in the Accounts of English Companies," Accountant, April 4, 1891, pp. 259 271.

100 Current-Noncurrent Method 5) 19 Floating-Nonfloating Method 6) 1900 1914 "official rate" 1939 1922 American Institute of Accountants: AIA C.S.Ashdown 7) 1931 AIA AIA 8) AIA1931 20 7 9) 31 05 7 1990. 3 17 1960 1890 06 07 C.S.Ashdown, "Treatment of Foreign Exchange in Branch office Accounting," Journal of Accountancy, Oct., 1922, pp. 262 279. 08 American Institute of Accountants, "Foreign Exchange Losses," Bulletin of AIA, Dec.15, 1931, pp. 1 3. 09 56 1991. 2 53 77 AIA, Bulletin of the American Institute of Accountants No.92, "Foreign Exchange Losses," Dec. 15, 1931. AIA, Bulletin of the American Institute of Accountants No.117, "Memorandum on Accounting for Foreign Exchange Gains," Jan. 11, 1934. AIA, Committee on Accounting Procedure, Accounting Research Bulletin No.4 (ARB#4), "Foreign Operations and Foreign Exchange," Dec. 1939. AIA, Research Department, "Foreign Exchange Rates," Journal of Accountancy, Feb. 1940. AIA, Research Department, "Foreign Operations and Foreign Exchange," Journal of Accountancy, Jan. 1941. AIA, Research Department, "Accounting Problems Arising from Devaluation of Foreign Currencies," Journal of Accountancy, Jan. 1950. AIA, Committee on Accounting Procedure, Accounting Research Bulletin No.43 (ARB#43), "Restatement and Revision of Accounting Research Bulletin," Chap. 12, 1953.

101 1913 40 10) 1953 AIA 4312 11) AIA 53 AIA 1931 1953 Monetary- Nonmonetary Method 1950 20 1920 60 2 AIA 1960 Closing Rate Method 1968 12) 1970 Temporal Method 4 Situational Approach 1970 Current Rate Method 70 10) A.L.Dickinson, Accounting Practice and Procedure, Scholars Book Co., 1913, pp. 120 126. 11) AIA, Committee on Accounting Procedure, Accounting Research Bulletin No. 43 (ARB#43), "Restatement and Revision of Accounting Research Bulletin," Chap.12, 1953. 12) Institute of Chartered Accountants in England and Wales, Recommendation on Accounting Principles N.25, "The Accounting Treatment of Major Changes in the Sterling Parity of Overseas Currencies," ICAEW, 17th Feb. 1968.

102 FASB IASC 1968 70 68 70 13 4 13) 14) 1965 70 99 1965 1960 2 1960 13 2 1991. 3. 31 1 172 14 3OA 1992. 3. 31 1 91

103 1971 8 International Monetary Fund: IMF12 1973 2 15 1 2 3 4 1933 5 6 7 8 9 10 11 1981 12 AAA 1975 13 14 15 1 1

104 15) 100 1 5 2 1891 Accountant 1890 floating 15 Frederick D.S.Choi & Gerhard G.Mueller, International Accounting 2nd ed., Prentice-Hall International, Inc., 1992, pp. 137 139.

105 1904 L.R.DickseeA.E.Cutforth 20 current 3 40 1913 1922 1922 9 AIA 16) AIA 1930 3 1 2 3 2 local currency 16 9 C.S.Ashdown, "Treatment of Foreign Exchange in Branch office Accounting," Journal of Accountancy, Oct., 1922, pp. 262 279. 1930 7 1990. 3 17 24

106 AIA1931 17) 1922 AIA1934 AIA1931 4 1933 1933 International Congress on Accounting A.E.Cutforth 18) 1910 23 1 17 4 1993. 7 51 69 18 A.E.Cutforth, "Exchange Fluctuations in Relation to Accounting as Regards Operating Results and Asset Values," Proceedings of The 4th International Congress on Accounting London, 1933 (Tuesday,18th July,1933, Morning Session), pp. 67 120. 1933 101993. 3 6588 3 4 1933 1983. 5 90 99

107 1933 1939 1930 AIA 19) 1939 AIA 4ARB#4 AIA AIA1931 1934 3 1 2 3 20) 2 4 A 1 2 B A 2 C 1 2 D 3 4 A B C 19 8 1991. 3 27 41 20 144 8 2 1993. 8 51 64

108 1 D 1940 AIA1940 ARB#4 AIA1941 1940 3 1 2 3 40 41 1949 9 30.5 ARB#4 AIA1950 5 1 2 3 4 5 6 19101950

109 1934 1953 attribute Perry Mason John A.Lindquist 7 1951 W.T.Baxter and B.S.Yamey 21) Samuel R.Hepworth 1956 22) 1 1960 National Association of Accountants: NAA 36 NAA#36 23) 1950 1968 Bert Tuckerman 1960 24) 1968 8 Leonald Lorensen 1972 25) 21 W.T.Baxter and B.S.Yamey, "Theory of Foreign Branch Account," Accounting Research, April 1951, p. 3. 22 Samuel R.Hepworth, Reporting Foreign Operations, Michigan Business Studies, 1956, (Reprint Edition 1980 by Arno Inc.). 23 NAA, Research Report No.36, "Management Accounting Problems in Foreign Operations," March 1, 1960,pp. 13 15. 24 Bert Tuckerman, "Reporting the Results of Foreign Currency Fluctuation," Management Accounting, Vol. XLIX, No. 8, April 1968, pp. 21 27. 25 Lorensen, Leonard, An Accounting Research Study No.12-Reporting Foreign Operations of U.S. Companies in U.S. Dollars, American Institute of Certified Public Accountants, New York, 1972.

110 remeasurement conversion process 3 12 3 Command over U.S.dollar 9 Polycentric, Local Perspective 26) 1968 Institute of Chartered Accountants in England and Wales: ICAEW 25 N.25 27) N.25 ICAEW N.25 Accounting Standards Committee: ASC 1983 Statements of Standard Accounting Practice: SSAP 20 SSAP#20 26 H.Perlmutter, "The Tortuous Evolution of the Multinational Corporation," Columbia Journal of World Business, January February 1969, pp. 9 18. Geocentric Regeocentric 27 Institute of Chartered Accountants in England and Wales, Recommendation on Accounting Principles N.25 "The Accounting Treatment of Major Changes in the Sterling Parity of Overseas Currencies," ICAEW, 17th Feb. 1968.

111 Foreign Currency Translation 28) SSAP#20 1983 SSAP#6 1974 16 1975 21 1977 27 1980 1968 1983 15 19 1972 R.M.Parkinson 1 2 3 10 29) Canadian Institute of Chartered Accountants: CICA 30) Journal of Accountancy 1972 1973 31) 28 Accounting Standards Committee, Statements of Standard Accounting Practice No. 20, Foreign Currency Translation, April 1983. 29 9 1992. 3 37 51 30 CICA, A Research Study of Canadian Institute of Chartered Accountants, Translation of Foreign Currencies, by R.MacDonald Parkinson, 1972. 31 1984 237

112 11 1981 9 FASB 1981 1975 FASB 8 SFAS#8 32) SFAS#8 1981 Functional Currency 52 SFAS#52 33) SFAS#8 6FASB 12 AAA 1975 AAA Committee on International Accounting: CIA 1975 4 1 2 3 4 CIA CIA GNP CIA 32 Financial Accounting Standards Board, Statement of Financial Accounting Standards No.8 Accounting for the Translation of Foreign Currency Transactions and Foreign Currency Financial Statements, FASB, October 1975. 42 1987. 2 21 47 33 Financial Accounting Standards Board, Statement of Financial Accounting Standards No.52-Foreign Currency Translation, FASB, December 1981.

113 13 34) 35) 100 2 exposure 36) position 37) 14 1968 N.25 1983 SSAP#20 N.25 1972 259 15 Donald R.Lessard Nitin Nohria 1960 34 51988. 3 719 35 H.Perlmutter, "The Tortuous Evolution of the Multinational Corporation," Columbia Journal of World Business, January February 1969, pp. 9 18. 36 132 12 6 1987. 12 74 86 37 27

114 20 19 19 1890 1891 Accountant 1904 1910 20 1890 100 1 5 1891 1921 1 2 3 1913 1953AIA 43 12 1913

115 1922 1931 AIA AIAAIA 1931 1953 20 7 1913 40 1953 AIA 4312 AIA 1 2 3 4 1951 1968 2 1 2 3 19721978 CICA 1650 1 2 3 4 5 1968 ICAEW

116 1 2 3 4 5 6 7 38) 38 1997. 3 55 66