A Comparison of Preparer and User Evaluation of Multinational Corporations Following the Issuance of SFAS No. 52

Abstract

This study is prompted by the lack of evidence regarding how managers (MNCEs) of multinational corporations (MNCs) and users, certified financial analysts (CFAs), utilize the information provided in consolidated financial statements in decision-making. A survey was conducted to examine whether the Statement of Financial Accounting Standards (SPAS) No. 52 is associated with revisions in the manner in which MNCEs and/or CFAs evaluate MNC financial position and performance and to determine how translation gains and losses are used in their respective decision models. Results indicate that MNCEs changed how they treat translation adjustments when evaluating their own companies after SPAS No. 52. The CFA practices were unaffected. Most CFAs surveyed include translation gains and losses when calculating financial ratios that involve either earnings or equity, regardless of whether those gains and losses are recognized in earnings or in equity. These CFAs perceive translation adjustments useful in assessing MNC performance, no matter what the functional currency of a foreign subsidiary is. In addition, either MNCEs nor CFAs perceive investments in MN Cs to be less risky as a result of SF AS No. 52, despite predictions that costly hedging activities would decrease. Furthermore, a majority of the CFAs reported that the evaluation of MNCs has not been simplified. Finally, study results imply that no translation adjustments should be reported in earnings, even when the functional currency is the U. S. dollar.