If you subscribe to The Atlantic magazine, the title of this post may ring a bell — a riff on “How American Politics Went Insane: It Didn’t Start with Donald Trump…” from the July/August edition. Now that I have made that acknowledgement, I will describe for you the accounting pronouncement that sent GAAP off its rocker.
The pronouncement was SFAS 52, Foreign Currency Translation. By a rare 4-3 vote in 1981, it replaced SFAS 8 from just a few years earlier. SFAS 8 remains the most principled statement ever promulgated by the FASB, which probably goes a long way toward explaining why issuers hated it so much.
The core principle of FAS 8 could be straight from an undergraduate accounting course: consolidated financial statements best portray a parent and all of the operations it controls as a single economic entity. SFAS 8 merely affirmed that foreign operations are no different in this regard than domestic operations. Here are two examples of the accounting [Read More...]