Reflections On Accounting For Foreign-Currency-Measured Assets

In the overall environment of rapid growth of global trade,China has been carrying out the formation mechanism reform of exchange rate of RMB to foreign currencies.In July 2005,the system of “forming the managed floating exchange rate on the basis of market supply and demand,and adjusting by referring to a package of currencies” was established and put into practice.The relatively stable historical situation of the exchange rates of RMB to foreign currencies discontinued in turn.As consequence,it made the companies involving in international business concern much more the accounting for foreign-currency-measured transactions and the gains and losses caused by changes of exchange rates.Since 2001,when China took part in WTO,the total value of imports and exports of the country has experienced continuous growth,although in 2015 it suffered temporary slide.Nowadays China has become the No.1 in foreign trade in terms of total value of the trade on the globe.In line with the increase of international business in both scale and scope,the foreign-currency-measured assets owned/controlled by companies within or outside the domain of the country have also continuously increased in volume.At the same time,induced by the implementation of the “going outwards” strategy,more and more China invested businesses are established in foreign countries.Owing to different factors,in operation of these businesses,it is not uncommon that the monetary unit used by accountants in accounting for assets is a controversial issue.Using either US dollar or the unit of local currency bothers them.And this has been a significant problem needing to be solved.Under the condition of aforementioned increasing flexibility of exchange rates and the continuous growth in the volume of foreign-currency-measured assets,the impacts caused by fluctuation of exchange rate upon the quality of accounting information becomes apparent.The proportion of such a kind of assets with the total assts influences much the value of the business as a whole.The fluctuations of exchange rates of RMB to different foreign currencies effect much the changes in financial expenses of these businesses.The practice used today in accounting for foreign-currency-measured assets is to recognize all influences of changes in exchange rates as financial expenses(exchange gain or loss)incurred in current period.It may generate unreal accounting information for disobeying the matching principle.In fact,such an accounting treatment is unable to meet the needs of managers and other groups of accounting information users in an environment of sharp fluctuation of exchange rates.It is also unable to provide useful information to investors for conveying to them inaccurate and/or unclear information regarding the reporting companies’ reality of assets resulting in their difficulty in making judgement upon the companies’ qualities of assets.Accordingly this objective phenomenon requires that the existing practice of accounting for foreign-currency-measured assets be re-examined for the sake of improvement of the quality of accounting information and risk control.The basses upon which this dissertation is structured are the concern of “usefulness for decision making” for accounting information,and the practicing objectives of the conservatism principle of accounting.Based upon the characteristics of foreign-currency-measured assets and referring to the treatment of financial assets,accounting principles guiding accounting for these assets used in different parts of the globe are examined and compared with each other,especially their impacts of their implementation upon the reported relevant assets and gains/losses,and the overall quality of accounting information of the reporting entity as a whole under the condition of rapid changes in exchange rates.Consequently in the dissertation,suggestions upon improvements are put forward that is to introduce the concepts of “fare value measurement” and “overall income financial statements” into accounting for foreign-currency-measured assets.To verify the rationale and invalidity of the suggested treatments,also in the dissertation a real case is used to simulate the employment of these methods.The results of accounting for the relevant transactions are compared with the outcomes generated using existing methods.Although in this dissertation the reform suggestion on the existing practice in accounting for foreign-currency-measured assets are generated,and the related general conclusions are drawn which may be of some theoretic value,accounting treatment of foreign-currency-assets is highly practice-oriented issue affected greatly by many practical factors.Therefore it still needs to be further examined and improved in line with the practical experiences accumulated and lessons learned.