Paul E. Holt, Gonzalo Rivera

(Texas A&M University, USA)

 

 

Abstract: The study recommends the use of a price parity time series instead of exchange rates for foreign currency translation and proposes that the accounting policy change would enhance the quality of reported earnings of consolidated financial statements. Accordingly, the study proposes and describes the construction and use of price parity generated exchange rates for currency translation, alleging that such a series would be a better representation of absolute exchange rates than market-generated numbers. The case is presented through deductive processes and supported by existing theoretical and empirical studies in economics and accounting.

 

 

Key words: exchange rates; foreign currency translation; purchasing power parity; quality of earnings

 

JEL codes: A12