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Consolidating U.S. and Foreign subsidiary financial statements - Research Paper Example

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Consolidating U.S. and Foreign subsidiary financial statements

Is Consolidating U.S. and Foreign-based Financial Statements Hides Useful Information? The author makes a conclusion that consolidating U.S. and foreign-based financial statements withholds some information to both the public and their foreign counterparts. This is evident in many situations within their many business transactions and statements. The first case where crucial information about financial statements is masked is while translating foreign currency. According to the author, the literature that shows foreign currency translation is usually categorized into four groups. The first group shows surveys issues related to the many changes that occur in the management behavior. The second, on the other hand researches on effects that come after using alternative methods of translating financial statements. The third literature is one which studies the market and the many emerging behaviors related to market patterns, and the final study reveals different preferences that are used as translating methods, this is done by making early adoption and embracing SFAS. However, studies that are made in the first category, a study were conducted on almost 70 Multinational Companies from different parts of USA. It was found out that that most management of these companies were not speculative and were very defensive as far as rate variations were concerned and were not willing to give comprehensive reports about their translational losses. It seems like these managements felt more insecure by giving out real financial statements about their standing financial status (Rodriguez 70). In respect to this, they were ready to pay big costs which would be much higher than the existing average exchange depreciation. Houston in a different report states that managements of MNCs tend to decrease their financial exposure as they adopt SFAS # 52 (Houston 52). They have been very unpleased with the newly passed translational rules as they advocate for financial openness and transparency (Choi 54). This is a clear indication that most Multinational Companies to a greater extent hide some important financial information that relates to their current financial status. Example 2: If there exists a foreign debt to equity ratio of 5 in the US and the parent company’s ratio is 1.25, the two of them shows different market positions at different time. Though the ratios seem vastly different from one another, it may be said that they are healthy. This is always in reference to the environment at that particular period of time. This consolidated ratio however, is given to be 2. Practically, this number is too low for a good financial environment and it can be said to be extremely high in USA. Thus, the consolidated debt in elation to prevailing equity ratio does not give us the reality in the two environments. It is clear that it contains very little and insignificant knowledge, which in fact, might be misleading. The only best way that can be employed to clearly interpreted and analyze this debt to equity ratio is through disaggregate, which means, consolidating, and later interpreting separate numbers in respect to particular environments (Rodriguez 92). In a nutshell, consolidating US and foreign financial statements masks some of its important information. This has been proved to be true by the many cases where transparent in as far as release of ...Show more


Name Professor Subject Date Consolidating U.S. and Foreign Subsidiary Financial Statements Introduction Companies are supposed to adopt integrated approaches to build a strong framework with IFRs. To b in a position to achieve this, they require to be having a fully a solution that fully integrated that should be ideal to support the adoption of IFRs…
Author : merl34
Consolidating U.S. and Foreign subsidiary financial statements essay example
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