单击此处编辑母版标题样式,单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,*,*,Economic consequences,Shanghai University of Finance and Economics,YUAN HONGQI,1,DIFINITION,Zeff(1978):the impact of accounting reports on the decision making behavior of business,government and creditors,The essential of the concept is that the accounting policy choice can affect the firm value.The is an opposite view to the implication of EMH.,Management is ignored in EMH while emphasized in economic consequences.,If a change of accounting policy affect the interest of management it will also have influence on the investors directly.,All accounting policy will matter despite lake of cash flow effects,2,why economic consequence is important?,Many of interesting events in accounting practice derive from EC,Accounting choice doesnt matter is odds with practice experiences.,The research on the reasons of EC leads to several important accounting theory branches.,3,The rise of EC,the accounting standard-setting is a,political process,rather than a neutral process,a well-defined concept of net income is not exist and this give other constituencies a excuse to intervene accounting standards.,third-party intervention:the choice of accounting policy affect the interest of various constituencies,broadening the representation on the standard-setting body,using exposure draft to allow various constituencies to comment on proposed accounting policy changes,4,Illustration of Economic Consequences,Foreign Exchange Translation,the Investment Tax Credit(ITC),Full-cost method or Successful-efforts method,5,Foreign Exchange Translation,the question is how to deal with the gains and losses from changes in exchange rates,two types of gains and losses,transaction gains and losses are realized,translation gains and losses are not be realized,6,SFAS 8(1975),Use of temporal method,distinction between nonmonetary and monetary items,nonmonetary items:historical rate,monetary items:current rate,translation adjustments included in net income,management couldnt control this kind of impact,7,SFAS 52(1981),Functional currency,self-sustaining subsidiary vs.Integrated foreign operation,subsidiary was a separate operation and parents exposure is equal to its net investment,for self-sustaining subsidiary,current rate translation method,translation adjustments recognized as shareholders equity,for integrated foreign operation and highly inflationary economies:temporal method(why?),8,economic theories of exchange rate determination(1),purchasing power(PP)PARITY,A currency represents PP over goods and services,market forces will operate on the exchange rates so as to keep PP constant across different countries,the theory also applies to inflationary economies,empirical tests support the view reasonably well in the long run,9,economic theories of exchange rate determination(2),interest rate(IR)parity,higher interest rates of a country will encourage capital flows into that country,this creates a demand for that countrys currency and a higher value for that country,distinction between two theories,PP parity theory:flows of goods and services,IR parity theory:capital flows,10,implications of two theories for translation adjustments,SFAS 8 was consistent with PP parity theory(nonmotary items)and,to a lesser extent,with IR parity theory(monetary items),the fact that no translation gains or losses were recognized with respect to non-monetary assets seemed consistent with PP theory,inclusion of translation gains or losses on net monetary liabilities supported IR theory,no much connection between economic theory and SFAS 52,11,why SFAS 8 received so much criticism?,The key problem was that the translation adjustments were unrealized but included in net income.The treatment was inconsistent with generally accepted historical cost accounting.Realization of translation gains or losses would take a long time.,Inclusion of unrealized gains or losses in income introduced a volatile and uncontrollable element,the treatment improved the relevance of the information while ignored the reliability.,12,ERCs of multinational firms,the empirical problem was whether the SFAS 8 or SFAS 52 improve the usefulness of accounting information,research by Collins and Salatka(1993):they think the noise effect dominate in the empirical tests,four hypothesis,H1:during the SFAS 8 period,the ERCs of multinational firms would be lower than the ERCs of the same firms during SFAS 52.,H2:the ERCs of control samples should be constant during the period of SFAS 8 and SFAS 52.,H3:during the SFAS 8 period,the ERCs of the multinational firms should be lower than those of the control firms,H4:during the SFAS 52 period,the ERCs of the multinational firms should be the same as those of the control firms,13,results of research by Collins and Salatka(1993),the researchers admitted the results provided weak evidence through the evidence was consistent with three of their four predictions.,Reasons of weak evidence,no control sample that is identical