A model of translation of foreign financial statements under inflation in the United States and Canada*

Abstract. This study investigates the translation of foreign financial statements in inflationary economies. The analysis is conducted by comparing the results obtained from the temporal and current rate methods to the translated adjusted-for-inflation (TAI) financial statements under varying degrees of purchasing power parity. The findings indicate that under perfect purchasing power parity, the temporal method yields undistorted results versus TAI. The current rate method, however, results in a distortion. When the purchasing power parity degree is not perfect, both the current rate and temporal methods distort the results. However, if the inflation exceeds the devaluation of the local currency, translation using the temporal method results in a lower distortion. This result is reversed when the devaluation of the local currency exceeds the rate of inflation. The study then proceeds to examine, from the viewpoint of a standard-setting body, the translation models in a cost-benefit framework. The results indicate that TAI is usually the best. This result is due to the fact that the benchmark model is more informative than the other methods, and the information production costs are close to the costs under the temporal method. Further, if the rate of inflation exceeds the devaluation of the local currency, the temporal method dominates the current rate method. The opposite holds if the devaluation of the local currency exceeds the rate of inflation. Moreover, this study examines the implications of CICA Handbook. Section 1650. The findings indicate that the Canadian variant of the temporal methods results in a distortion even when the purchasing power parity assumption holds. Résumé. L'auteur s'intéresse à la conversion des états financiers dressés en devises, dans les économies inflationnistes. Son analyse repose sur la comparaison des résultats de l'application de la méthode temporelle et de la méthode du taux courant à la conversion des états financiers ajustés pour tenir compte de l'inflation, selon divers degrés de parité du pouvoir d'achat. Suivant les résultats obtenus en situation de parité parfaite du pouvoir d'achat, la conversion à l'aide de la méthode temporelle est sans biais par rapport à celle de la conversion des états financiers ajustés pour tenir compte de l'inflation. La méthode du taux courant donne lieu, quant à elle, à un biais. Lorsque la parité du pouvoir d'achat n'est pas parfaite, la méthode du taux courant et la méthode temporelle faussent toutes deux les résultats. Toutefois, si l'inflation excède la dévaluation de la monnaie nationale, la conversion à l'aide de la méthode temporelle donne un biais moins accentué, relation qui s'inverse lorsque la dévaluation de la monnaie nationale excède le taux d'inflation. L'auteur procède ensuite, du point de vue d'un organisme de normalisation, à l'analyse des modèles de conversion sous l'angle coûts-avantages. Les résultats indiquent que la conversion des états financiers ajustés pour tenir compte de l'inflation est habituellement la meilleure. Cette constatation découle du fait que le modèle étalon est plus informatif que les autres méthodes, et que les coûts de production de l'information se rapprochent des coûts associés à la méthode temporelle. En outre, si le taux d'inflation excède la dévaluation de la monnaie nationale, la méthode temporelle l'emporte sur celle du taux courant. L'opposé est vrai si la dévaluation de la monnaie nationale excède le taux d'inflation. Enfin, l'auteur analyse les conséquences du chapitre 1650 du Manuel de l'I.C.C.A. et en vient à la conclusion que la variante canadienne de la méthode temporelle donne lieu à un biais, même quand l'hypothèse de la parité du pouvoir d'achat est respectée.     

EFFECTS OF SMALL BUSINESS ACCOUNTING BASES AND ACCOUNTANT SERVICE LEVELS ON LOAN OFFICER DECISIONS

This study examines effects of four combinations of accounting bases and service levels — GAAP and income tax bases, and audit and review service levels — on loan officers' decisions, both separately and in interaction. It examines effects on loan decisions and perceptions of interest rates, default risk, confidence, and usefulness. The interaction of accounting basis and service level significantly affects perceived confidence but does not affect other decisions. Accounting basis and service level separately affect interest rates, default risk, and report usefulness, but do not affect the loan decision.     

Daylight saving effect

Kamstra et al. [Kamstra, M.J., Kramer, L.A., Levi, M.D., 2000. Losing sleep at the market: the daylight saving anomaly. The American Economic Review 90, 1005–1011] argue that the mean weekend return following the changes in daylight saving time is less than the mean weekend return throughout the rest of the year. Opposing studies, such as Pinegar [Pinegar, J.M., 2002. Losing sleep at the market: comment. The American Economic Review 92, 1251–1256), reason that the observed results depend upon methodology. We extend the ongoing discussions by providing further evidence for equity markets and bond markets in Germany and across Europe. We further demonstrate that the daylight saving effect does not serve as a potential rationale for the weekend effect.     

Bayesian MCMC Mapping of Quantitative Trait Loci in a Half-sib Design: a Graphical Model Perspective

Graphical models provide a powerful and flexible approach to the analysis of complex problems in genetics. While task-specific software may be extremely efficient for any particular analysis, it is often difficult to adapt to new computational challenges. By viewing these genetic applications in a more general framework, many problems can be handled by essentially the same software. This is advantageous in an area where fast methodological development is essential. Once a method has been fully developed and tested, problem-specific software may then be required. The aim of this paper is to illustrate the potential use of a graphical model approach to genetic analyses by taking a very simple and well-understood problem by way of example.     

Bank and Business Performance Measurement

Given the objective of maximizing the wealth of existing shareholders, this paper discusses some of the issues that arise in attempting to measure the performance of individual businesses within a bank. The paper describes two return measures – return on assets within a business and the return on the 'equity' of an individual business – and discusses the appropriate bench–marks. The paper ends with a discussion of the cost of unused allocated capital and the appropriate performance metric.
(J.E.L.: G30, G31).     

Tolerance for uncertainty and the growth of informationally opaque industries

Hofstede's [Hofstede, Geert H. 1980. Culture's consequences: international differences in work-related values. Thousand Oaks, CA: Sage.] cross-country psychological survey of IBM employees finds that some countries (societies) are systematically less tolerant of uncertainty, while uncertainty-tolerance is shown by some theoretic models to be essential to the growth of emerging sectors about which less is known. This paper first uses Durnev, Morck, and Yeung's [Durnev, Art, Morck, Randall, and Yeung, Bernard. 2004. Value-enhancing capital budgeting and firm-specific stock return variation. The Journal of Finance. 59(1): 65–105.] methodology to identify these informationally opaque industries. The hypothesis is then made that countries characterized by high uncertainty aversion (measured by Hofstede's indicator, and two other alternative indicators) will grow disproportionately slower in industrial sectors where information is less available. Using the Rajan and Zingales [Rajan, Raghuram G. and Zingales, Luigi. 1998. Financial Dependence and Growth. American Economic Review. Vol. 88(3): 559–586.] “difference-in-differences” methodology, which is relatively free from the endogeneity problem, the study provides robust evidence of such an industrial growth pattern in 34 countries and 36 manufacturing industries. It also shows that national uncertainty aversion is not driven by underdevelopment of financial sector, inadaptability of civil law systems, lower level of economic or human capital development, labor market inflexibility, or any of many other institutional factors. The results remain robust when religious (Catholic vs. Protestant) composition is used as an instrumental variable for national uncertainty aversion. The international evidence presented helps explain why some countries are slower in embracing “new” (vs. traditional) industries.     

Pre-Harvest Price Expectations for Corn: The Information Content of USDA Reports and New Crop Futures

This article examines the puzzle of why futures prices continue to react to USDA crop reports despite the fact that reports appear to be no longer "newsworthy," that is, provide no better production estimates than private forecasts. The information value of reports is measured in terms of their influence on rational agents' harvest-time corn price expectations, which are uncovered using a Hamilton-type modeling approach. Results show that reports are still "newsworthy," as they would contribute to agents' price expectations if released a day early. Thus futures price reactions, which closely reflect price expectations, are rational and consistent with efficient markets hypothesis.     

Is your vision consistent?: A method for checking, based on scenario concepts

Common sense tells us that the future is an essential element in any strategy. In addition, there is a good deal of literature on scenario planning, which is an important tool in considering the future in terms of strategy. However, in many organizations there is serious resistance to the development of scenarios, and they are not broadly implemented by companies. But even organizations that do not rely heavily on the development of scenarios do, in fact, construct visions to guide their strategies. But it might be asked, what happens when this vision is not consistent with the future? To address this problem, the present article proposes a method for checking the content and consistency of an organization's vision of the future, no matter how it was conceived. The proposed method is grounded on theoretical concepts from the field of future studies, which are described in this article. This study was motivated by the search for developing new ways of improving and using scenario techniques as a method for making strategic decisions. The method was then tested on a company in the field of information technology in order to check its operational feasibility. The test showed that the proposed method is, in fact, operationally feasible and was capable of analyzing the vision of the company being studied, indicating both its shortcomings and points of inconsistency.