On Revising FASB 8-Use a Band-Aid or Major Surgery?

As a result of the barrage of criticism of Statement No. 8, the Financial Accounting Standards Board (FASB) is on the verge of revising its most controversial standard. There is little agreement on the form of change, however. Despite the criticism, FASB 8 should be retained as the foundation of any new accounting presentation. As long as US corporate managers were allowed to choose the method of foreign exchange translation, it was almost impossible to compare the performances of multinational companies.FASB 8 captures the relationship between exchange rates and inflation. It leans heavily on the dichotomy between monetary accounts, which are fixed in foreign currency terms, and nonmonetary accounts, which are not. Many feel that the treatment of inventory is the obvious candidate for change. The real villian would appear to be historical cost accounting rather than FASB 8. The treatment of long-term debt is another problem area. The dramatic swings in the translated equivalents of foreign currency debt are unrealistic. A meaningful and relatively stable measure of value for each company is simply not possible with a standardized accounting system.