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Advanced Accounting
This text is intended for a senior level or graduate, one semeter course in advanced accounting. With coverage of the most commonly addressed advanced accounting topics, this text offers a current, concise treatment of advanced accounting. The consolidations chapters follow the Entity Concept – Full Goodwill approach, consistent with the latest FASB publications. The text emphasizes FARS accounting research and includes an instructional supplement on how to conduct FARS and other database searches. Taking a macro approach and then relating it back to an application, the text emphasizes the “why” behind accounting, in addition to the procedural methods. The authors currently teach the course at their respective institutions and have been using this material in the classroom for several years.
Paperback
First published January 22, 2004
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November 25, 2025
Little known book that taught me everything about acquisitions, consolidations and currency conversions.
***
Summary of this great (but repetitive and sometimes cumbersome) text.
Chapter 1: Introduction to Business Combinations
---Survey of types of business combinations under GAAP (mergers, acquisitions, consolidations).
---Key terms: acquirer vs. acquiree, acquisition date, control, equity method.
---Introduction to the full goodwill concept based on entity approach. ( I think the full goodwill approach is required now, book was from 2004)
Chapter 2: Consolidation at the Date of Acquisition
---Basics of consolidation: elimination of subsidiary equities. (put your thinking cap on, guy)
---Measurement of goodwill, including full vs. partial. Bargain purchases. (Bargain purchases don't happen these days. Those only happened before the great paper-credit experiment of Greenspan & Bernanke. Now you only see Price:Book of 20 or 30. Throw away your G&D "Security Analysis" book. The Fed's only mandate is "make the stock market go up or there will be a depression". Our hopeless situation is incredible, but there you have it.
---Consolidation worksheet at acquisition, including noncontrolling interests. (this is where things get fun, this is accounting technique at its finest. Even the average CPA is deficient in this area.)
---Chapter 3: Consolidation Subsequent to the Acquisition Date
Post-acquisition accounting: adjusting for income, dividends, amortization. Getting to be more involved, light being shed on how the world operates. Important stuff, being as most of our large corporations gobble up start-ups (by printing their own shares and handing them out in exchange for companies) as soon as these start-ups show a slither of promise. So all we have are quasi monopolies, just like our founding fathers insisted on.
---Elimination of intercompany transactions and full consolidation mechanics.
Chapter 4: Intercompany Transactions
---Need to eliminate intercompany buy/sell of assets, inventory, services. I/C elims for inventory where X buys Y and then Y buys inventory from X at X's selling price (not Cost) and then sells off 70% of the inventory at a further markup can be tricky and the reward feels like it isn't worth the effort you have to go through to arrive at the correct result. But... if you don't have the time to brush your teeth... your teeth will fall out.
---Special issues: intercompany profits, debt, asset transfers (e.g. depreciation implications). I especially liked the part about gains on extinguishment of debt (Y buys bonds issued by X after interest rates rise). X owns Y so it's like X bought its own IOU for less that the proceeds it got for issuing the bond and can tear up the IOU. This is why most economists today are confused about everything. They don't have basic accounting skills. Banking is simply glorified accounting, not calculus. For example, open Alan Blinder's "Central Banking in Theory and Practice". Instead of using *words* to outline how central banks set their policy objectives, he lays out equations. Where words would do! No... - where words would do a *much better job* than math.
---Adjustments for unrealized profits and intercompany payables.
Chapter 5: Foreign Currency Transactions
---Accounting treatment of foreign currency transactions (purchase/sales/payments).
---Remeasurement to functional currency, "appropriate" exchange rates.
Chapter 6: Foreign Currency Financial Statements
---Translation of financial statements of foreign subsidiaries.
---Temporal vs. current rate methods and determining functional vs. presentation currency.
---Handling FX gains/losses in income or OCI:
"Translation" (or the "Current Rate Method") is the sensible method, and sends FX impact to Other Comprehensive Income (OCI) via the "Cumulative Translation Adjustment" account (CTA). This amount is simply the dollars needed to *make the FX-converted "Trial Balance" balance*. Since you use different rates to translate P&L accounts, B/S accounts and Equity accounts (retained earnings is a "rolling" calc that uses Day 1 ("Hist") FX rate), the FX-converted TB won't be in balance. Hence, CTA to balance it - (an equity account) on the consolidated statements.
The parent takes an equity method JE to recognize its portion -say 80% (excludes the NCI portion, say 20%) of the Sub's FX impact. Debit "Investment in Sub" (if an FX gain) $XXXX. Credit CTA $XXXX. The elim worksheet gets rid of the Sub's OCI, leaving only the parent's portion. Makes sense. Non-Controlling Interest (NCI) gets the rest.
"Remeasurement" (the "Temporal Method") sends phony "FX Gains/Losses" to the sub's P&L which, of course, makes its way to the consolidated entity's P&L (not eliminated as a worksheet JE). It also mis-states "non-monetary" assets and liabilities on the consolidated B/S. More on this FASB-sanctioned error below.
I sent the SEC a paper on why it should be got rid of. That was in the year 2021. But later, I put an example into Excel using lease calcs and saw the (very limited) appeal of this Temporal Method - ie hyperinflation economies. That said, no sane investor sends money to Venezuela or Zimbabwe, so there is no need for forcing GAAP dealing with hyperinflation on the rest of us. I show that email under the "Correspondence" section below, along with correspondence with the Great Man - Charles Mulford, and the author of this book.
Let's summarize these methods, with the help of chaGPT (I argue only the Current Rate method should be used, save for Zimbabwe):
*** "1. OVERVIEW OF EACH METHOD
Current Rate Method
Used when the functional currency ≠ parent’s reporting currency. The focus is on maintaining the integrity of the local financial statements, then translating them into the parent’s currency for reporting.
All assets and liabilities → Current rate
Equity items → Historical rate
Revenues and expenses → Average rate (typically for the period)
FX gains/losses go to OCI (Other Comprehensive Income
Temporal Method (aka Historical Rate Method)
Used when the functional currency = parent’s reporting currency. The goal is to simulate what the sub's books would look like if it had kept them in the parent’s currency all along. (ChatGPT is technically wrong here. The Temporal method is used when the *Sub's Local currency is not the Functional currency*).
Monetary assets/liabilities → Current rate
Non-monetary assets/liabilities (like inventory, PP&E, intangibles) → Historical rate (this creates the error)
Revenue and expenses → Use the rate at transaction date (or average if appropriate)
Depreciation, COGS, amortization → Use historical rate (since related to historical assets)
FX gains/losses go to Net Income.
2. CONVERSION WORKFLOW
A. If the sub’s functional currency is the same as the parent’s currency:
Only Temporal Method is needed
(no need for Current Rate Method)
B. If the sub’s functional currency ≠ parent’s currency:
Use Temporal Method first to convert local currency → functional currency
Then use Current Rate Method to convert functional currency → parent’s reporting currency
This is the two-step process you described correctly."***
***
Even in the PWC, Deloitte & Touche and KPMG Guides on ASC 805 & 830 and IAS 21, they give examples of this technique and don't question the obvious issues that arise when we relax assumptions, and assume large FX swings.
From my paper to the SEC:
>>>>If you look in section 5.4 of the PWC guide: “Translation when a foreign entity maintains its books and records in a currency other than the functional currency”, you see a hypothetical example of the very error I discuss outlined in action, with no mention of the logical flaw which I am discussing. Why did the preparer of this PWC document not question the validity of using the “Hist” GBP:EUR rate in determining the value of the entity’s assets and liabilities? In the example on p 5-9, it is supposed that the GBP strengthened from 1.15 EUR (on the acquisition date) to 1.50 EUR per GBP on 12/31/X4 and then falls back to 1.20 EUR per GBP on 12/31/X5. What if we assumed that GBP : EUR was instead 1 : 20 on 12/31/X5 - (perhaps we imagine the ECB prints a lot of euro relative to the BOE and the Federal Reserve, and that there is a recession in the euro-zone, so production of goods and services is falling there)? Then the Cash account in the example would use this rate of 20 and the foreign sub would show 13,000 GBP * 20 = EUR 260,000 (correctly) in its cash account “in functional currency” which would then be converted to USD at some other rational “up-to-date” EUR:USD SPOT rate (maybe 17 : 1), such that we may end back up around the correct value of USD 15,000, the presumption here being “the EUR has weakened substantially vs everything”.
But our “Net Plant” account would not use the EUR rate of 20, it would use the irrelevant “Hist” rate (“price”) of 1.15, so the EUR “functional” balance for “PP&E” would be GBP 9,000 * 1.15 = EUR 10,350. It would then use the correct “up-to-date” EUR:USD SPOT rate of 17 in applying the Current Rate Method to get to USD!
So the parent company “NewYork-Co” is forced to report that it has “Investment in Land” via its LondonCo subsidiary worth (“Hist”) EUR 10,350 / 17 (i.e. the USD:EUR SPOT rate) = 600 USD, a ridiculous proposition. This, in spite of the fact that London-Co plainly identifies the “Investment in Land” on its GBP GL at the correct value of GBP 9,000 and GBP:USD is known to everyone with the internet as being 1: 1.2 on the 10K date. NewYork-Co should be showing something like USD $11,000 in “Land” on its consolidated balance sheet, not $600! <<<
***
Chapter 7: Partnership Formation, Operation & Changes in Ownership (I didn't read this chapter - I need to finish the chapters on Partnerships)
Chapter 8: Partnership Liquidation
Chapter 9: Nongovernmental Not‑for‑Profit Organizations (this is where the content gets excruciatingly painful. Not only are governments not needed nowadays, but their accounting rules are not accounting at all. Its all a bunch of weird Fund / Budget / Encumbrance stuff)
Chapter 10: State & Local Governments – Overview & CAFR - see note on Ch 9
Government-wide vs. fund-basis reporting under GASB. see note on Ch 9.
Chapter 11: State & Local Governments – Fund Accounting - see note on Ch 9.
Chapter 12: Government Colleges & Universities - free uni would be something I would vote for instead of "fixing the outdoors temperature" money-grab fraud, foisted on the most ignorant, gullible and passionate of peasants. Or "war games" for the amusement of Skull & Bones alum.
Great book, add to cart!
***
Correspondence:
From: Charles Mulford
Sent: Wednesday, November 17, 2021 4:32 PM
To: (Rommel Monet)
Subject: Re: Temporal Method of remeasurement.
EXTERNAL EMAIL
Hi (Rommel),
I understand, appreciate and agree with your point of view. I will say, however, that under highly inflationary conditions, the argument for the temporal method gets stronger. Take a company in a highly inflationary country (like the U.S., no, just kidding). Here there is an understandable argument for treating differently the nonmonetary asset and the monetary borrowing taken out to finance it. As inflation rages, the value of the nonmonetary asset will adjust and the company won't or shouldn't lose purchasing power. The value of the liability, however, won't adjust and the company will experience a gain as the funds needed to liquidate it declines.
In stable currency situations, though, this argument doesn't obtain and the all current method makes more sense.
Regards,
Chuck
On Wed, Nov 17, 2021 at 3:00 PM (Rommel Monet) wrote:
Hi again Dr Mulford.
I was reviewing your chapter on consolidations and foreign currency restatements in “Guide to Financial Reporting” and noticed this commentary:
“The all-current and temporal methods are applied in different circumstances, and they can produce quite different results. In particular, as shown above, the translation adjustments are different because currency exposure is altered under these two methods. Moreover, translation adjustments under the all-current method are consigned to other comprehensive income and are not part of the conventional net income that is the focus of most statement users. Whether there are real economic differences that justify financial statement effects that can be so different is an issue on which there is little evidence” (italics mine - p 319-320 “Guide to Financial Reporting and Analysis”, Comiskey & Mulford, John Wiley and Sons, copyright 2000).
I have always felt that way!
I feel that the Temporal Method introduces errors into the financial statements of the consolidated entity. There is no sensible justification for holding “non-monetary” assets at an old, irrelevant “Hist” FX rate when “remeasuring” into this false-construct called “functional currency”… all while allowing the liability which financed that asset (invariably “monetary”) to (sensibly) use the SPOT rate.
Only the Current Rate method should be used.
I find it hard to believe I am the only one who sees the blatant error in the Temporal Method. I hope I am just confused, because this has been in effect since the 70s I think.
(Rommel)
***
From: OCA
Sent: Thursday, November 18, 2021 5:47 AM
To: (Rommel Monet)
Subject: RE: GAAP questions & concerns (ASC 830)
EXTERNAL EMAIL
Good Morning. You may submit the paper to this email account and it will be forwarded to staff for review. Thank you for your inquiry.
From: (Rommel Monet)
Sent: Wednesday, November 17, 2021 11:46 AM
To: OCA
Cc: Rule-Comments
Subject: GAAP questions & concerns (ASC 830)
CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you recognize the sender and know the content is safe.
Good morning,
I work in the field of lease accounting as a CMA, and observe lease accounting data in foreign currency (of foreign Subs) which must be restated to the reporting currency of the parent for purposes of producing consolidated financial statements.
After reading the theoretical justification outlined in ASC 830 and IAS 21 (as well as PWC, E&Y guides, and advanced accounting texts, such Skekel & Bline and Comiskey & Mulford [*]), I conclude that:
--while the “Current Rate Method” of “translation” from Local Currency (of the Subsidiary) to Reporting Currency (of the Parent) produces no theoretical errors in the consolidated financial statements,
-- the “Temporal Method” of “remeasurement” (from the Local Currency of the Sub to its “Functional Currency”) does introduce errors into the financial reports of the consolidated entity and that the error is self-evident. The cause of the error being that assets and liabilities (which are unnecessarily differentiated as “non-monetary” or “monetary) with a “non-monetary” designation are to be “remeasured” into the “Functional Currency” (which is nothing more than a false construct) using irrelevant (old) “Historical” FX rates. This mis-states the value of the asset or liability and produces spurious FX gains / losses on the books of the SUB (in Earnings, not OCI). Most assets are of a “non-monetary” nature while most liabilities that financed those assets are of a “monetary” nature. When the Temporal Method is employed, it illogically converts the asset at an old “Hist” FX rate, while allowing the liability that financed that asset to use (sensibly) the SPOT rate. The resulting imbalance in the converted trial balance means an FX gain/loss is needed to plug the books, -- this FX loss being “phony” and results from using this irrelevant “Hist” FX rate.
I have written a paper on the matter and wish to submit it to the SEC (not the FASB, as they will not view it with an open mind, being indoctrinated with the concept of “functional currency” as being a legitimate thing (-it is not)).
Is there an SEC address I can submit said paper to? My objective is nothing more than cleaning up poor GAAP rules. My proposal is not to force companies to drop the Temporal Method, but to allow new companies to ignore the requirement of “determining functional currency” and allowing them to simply always convert the accounts of their foreign Subs using Current Rate Principles. That is, this proposal would not cause any disruption and it would clean up future financial reporting.
Sincerely,
(Rommel Monet), CMA
[*] Comiskey and Mulford write in “Guide to Financial Reporting and Analysis”:
“The all-current and temporal methods are applied in different circumstances, and they can produce quite different results. In particular, as shown above, the translation adjustments are different because currency exposure is altered under these two methods. Moreover, translation adjustments under the all-current method are consigned to other comprehensive income and are not part of the conventional net income that is the focus of most statement users. Whether there are real economic differences that justify financial statement effects that can be so different is an issue on which there is little evidence” (italics mine - p 319-320 “Guide to Financial Reporting and Analysis”, Comiskey & Mulford, John Wiley and Sons, copyright 2000).
***
Ted Skekel
Tue, Aug 13, 2019, 1:04 PM
to me
(Rommel) -
It is funny that you reached out to Dennis – he is still involved (a baby compared to me) and I have no doubt he gave you sound guidance. By the way you were fortunate to have had the opportunity to cross paths with Eugene Comiskey. He was/is a highly respected professional in both the academic and “real world” circles.
Sometimes while you are in school you have no idea of the stature of your professors. For example, I did my undergraduate work at Florida State. I had two classes with Dr. Homer Black and was mentored by him. But it was several years later before I learned of his significant contribution in developing the modern day income statement format (which included the first division of operating and non-operating results) – all of which was published about the time I began my studies at the Business School of FSU. Dr. Black was so humble and understated that I did not know that he had such achievements until after I departed FSU. Go figure – right?
Good luck to you – Ted
***
Summary of this great (but repetitive and sometimes cumbersome) text.
Chapter 1: Introduction to Business Combinations
---Survey of types of business combinations under GAAP (mergers, acquisitions, consolidations).
---Key terms: acquirer vs. acquiree, acquisition date, control, equity method.
---Introduction to the full goodwill concept based on entity approach. ( I think the full goodwill approach is required now, book was from 2004)
Chapter 2: Consolidation at the Date of Acquisition
---Basics of consolidation: elimination of subsidiary equities. (put your thinking cap on, guy)
---Measurement of goodwill, including full vs. partial. Bargain purchases. (Bargain purchases don't happen these days. Those only happened before the great paper-credit experiment of Greenspan & Bernanke. Now you only see Price:Book of 20 or 30. Throw away your G&D "Security Analysis" book. The Fed's only mandate is "make the stock market go up or there will be a depression". Our hopeless situation is incredible, but there you have it.
---Consolidation worksheet at acquisition, including noncontrolling interests. (this is where things get fun, this is accounting technique at its finest. Even the average CPA is deficient in this area.)
---Chapter 3: Consolidation Subsequent to the Acquisition Date
Post-acquisition accounting: adjusting for income, dividends, amortization. Getting to be more involved, light being shed on how the world operates. Important stuff, being as most of our large corporations gobble up start-ups (by printing their own shares and handing them out in exchange for companies) as soon as these start-ups show a slither of promise. So all we have are quasi monopolies, just like our founding fathers insisted on.
---Elimination of intercompany transactions and full consolidation mechanics.
Chapter 4: Intercompany Transactions
---Need to eliminate intercompany buy/sell of assets, inventory, services. I/C elims for inventory where X buys Y and then Y buys inventory from X at X's selling price (not Cost) and then sells off 70% of the inventory at a further markup can be tricky and the reward feels like it isn't worth the effort you have to go through to arrive at the correct result. But... if you don't have the time to brush your teeth... your teeth will fall out.
---Special issues: intercompany profits, debt, asset transfers (e.g. depreciation implications). I especially liked the part about gains on extinguishment of debt (Y buys bonds issued by X after interest rates rise). X owns Y so it's like X bought its own IOU for less that the proceeds it got for issuing the bond and can tear up the IOU. This is why most economists today are confused about everything. They don't have basic accounting skills. Banking is simply glorified accounting, not calculus. For example, open Alan Blinder's "Central Banking in Theory and Practice". Instead of using *words* to outline how central banks set their policy objectives, he lays out equations. Where words would do! No... - where words would do a *much better job* than math.
---Adjustments for unrealized profits and intercompany payables.
Chapter 5: Foreign Currency Transactions
---Accounting treatment of foreign currency transactions (purchase/sales/payments).
---Remeasurement to functional currency, "appropriate" exchange rates.
Chapter 6: Foreign Currency Financial Statements
---Translation of financial statements of foreign subsidiaries.
---Temporal vs. current rate methods and determining functional vs. presentation currency.
---Handling FX gains/losses in income or OCI:
"Translation" (or the "Current Rate Method") is the sensible method, and sends FX impact to Other Comprehensive Income (OCI) via the "Cumulative Translation Adjustment" account (CTA). This amount is simply the dollars needed to *make the FX-converted "Trial Balance" balance*. Since you use different rates to translate P&L accounts, B/S accounts and Equity accounts (retained earnings is a "rolling" calc that uses Day 1 ("Hist") FX rate), the FX-converted TB won't be in balance. Hence, CTA to balance it - (an equity account) on the consolidated statements.
The parent takes an equity method JE to recognize its portion -say 80% (excludes the NCI portion, say 20%) of the Sub's FX impact. Debit "Investment in Sub" (if an FX gain) $XXXX. Credit CTA $XXXX. The elim worksheet gets rid of the Sub's OCI, leaving only the parent's portion. Makes sense. Non-Controlling Interest (NCI) gets the rest.
"Remeasurement" (the "Temporal Method") sends phony "FX Gains/Losses" to the sub's P&L which, of course, makes its way to the consolidated entity's P&L (not eliminated as a worksheet JE). It also mis-states "non-monetary" assets and liabilities on the consolidated B/S. More on this FASB-sanctioned error below.
I sent the SEC a paper on why it should be got rid of. That was in the year 2021. But later, I put an example into Excel using lease calcs and saw the (very limited) appeal of this Temporal Method - ie hyperinflation economies. That said, no sane investor sends money to Venezuela or Zimbabwe, so there is no need for forcing GAAP dealing with hyperinflation on the rest of us. I show that email under the "Correspondence" section below, along with correspondence with the Great Man - Charles Mulford, and the author of this book.
Let's summarize these methods, with the help of chaGPT (I argue only the Current Rate method should be used, save for Zimbabwe):
*** "1. OVERVIEW OF EACH METHOD
Current Rate Method
Used when the functional currency ≠ parent’s reporting currency. The focus is on maintaining the integrity of the local financial statements, then translating them into the parent’s currency for reporting.
All assets and liabilities → Current rate
Equity items → Historical rate
Revenues and expenses → Average rate (typically for the period)
FX gains/losses go to OCI (Other Comprehensive Income
Temporal Method (aka Historical Rate Method)
Used when the functional currency = parent’s reporting currency. The goal is to simulate what the sub's books would look like if it had kept them in the parent’s currency all along. (ChatGPT is technically wrong here. The Temporal method is used when the *Sub's Local currency is not the Functional currency*).
Monetary assets/liabilities → Current rate
Non-monetary assets/liabilities (like inventory, PP&E, intangibles) → Historical rate (this creates the error)
Revenue and expenses → Use the rate at transaction date (or average if appropriate)
Depreciation, COGS, amortization → Use historical rate (since related to historical assets)
FX gains/losses go to Net Income.
2. CONVERSION WORKFLOW
A. If the sub’s functional currency is the same as the parent’s currency:
Only Temporal Method is needed
(no need for Current Rate Method)
B. If the sub’s functional currency ≠ parent’s currency:
Use Temporal Method first to convert local currency → functional currency
Then use Current Rate Method to convert functional currency → parent’s reporting currency
This is the two-step process you described correctly."***
***
Even in the PWC, Deloitte & Touche and KPMG Guides on ASC 805 & 830 and IAS 21, they give examples of this technique and don't question the obvious issues that arise when we relax assumptions, and assume large FX swings.
From my paper to the SEC:
>>>>If you look in section 5.4 of the PWC guide: “Translation when a foreign entity maintains its books and records in a currency other than the functional currency”, you see a hypothetical example of the very error I discuss outlined in action, with no mention of the logical flaw which I am discussing. Why did the preparer of this PWC document not question the validity of using the “Hist” GBP:EUR rate in determining the value of the entity’s assets and liabilities? In the example on p 5-9, it is supposed that the GBP strengthened from 1.15 EUR (on the acquisition date) to 1.50 EUR per GBP on 12/31/X4 and then falls back to 1.20 EUR per GBP on 12/31/X5. What if we assumed that GBP : EUR was instead 1 : 20 on 12/31/X5 - (perhaps we imagine the ECB prints a lot of euro relative to the BOE and the Federal Reserve, and that there is a recession in the euro-zone, so production of goods and services is falling there)? Then the Cash account in the example would use this rate of 20 and the foreign sub would show 13,000 GBP * 20 = EUR 260,000 (correctly) in its cash account “in functional currency” which would then be converted to USD at some other rational “up-to-date” EUR:USD SPOT rate (maybe 17 : 1), such that we may end back up around the correct value of USD 15,000, the presumption here being “the EUR has weakened substantially vs everything”.
But our “Net Plant” account would not use the EUR rate of 20, it would use the irrelevant “Hist” rate (“price”) of 1.15, so the EUR “functional” balance for “PP&E” would be GBP 9,000 * 1.15 = EUR 10,350. It would then use the correct “up-to-date” EUR:USD SPOT rate of 17 in applying the Current Rate Method to get to USD!
So the parent company “NewYork-Co” is forced to report that it has “Investment in Land” via its LondonCo subsidiary worth (“Hist”) EUR 10,350 / 17 (i.e. the USD:EUR SPOT rate) = 600 USD, a ridiculous proposition. This, in spite of the fact that London-Co plainly identifies the “Investment in Land” on its GBP GL at the correct value of GBP 9,000 and GBP:USD is known to everyone with the internet as being 1: 1.2 on the 10K date. NewYork-Co should be showing something like USD $11,000 in “Land” on its consolidated balance sheet, not $600! <<<
***
Chapter 7: Partnership Formation, Operation & Changes in Ownership (I didn't read this chapter - I need to finish the chapters on Partnerships)
Chapter 8: Partnership Liquidation
Chapter 9: Nongovernmental Not‑for‑Profit Organizations (this is where the content gets excruciatingly painful. Not only are governments not needed nowadays, but their accounting rules are not accounting at all. Its all a bunch of weird Fund / Budget / Encumbrance stuff)
Chapter 10: State & Local Governments – Overview & CAFR - see note on Ch 9
Government-wide vs. fund-basis reporting under GASB. see note on Ch 9.
Chapter 11: State & Local Governments – Fund Accounting - see note on Ch 9.
Chapter 12: Government Colleges & Universities - free uni would be something I would vote for instead of "fixing the outdoors temperature" money-grab fraud, foisted on the most ignorant, gullible and passionate of peasants. Or "war games" for the amusement of Skull & Bones alum.
Great book, add to cart!
***
Correspondence:
From: Charles Mulford
Sent: Wednesday, November 17, 2021 4:32 PM
To: (Rommel Monet)
Subject: Re: Temporal Method of remeasurement.
EXTERNAL EMAIL
Hi (Rommel),
I understand, appreciate and agree with your point of view. I will say, however, that under highly inflationary conditions, the argument for the temporal method gets stronger. Take a company in a highly inflationary country (like the U.S., no, just kidding). Here there is an understandable argument for treating differently the nonmonetary asset and the monetary borrowing taken out to finance it. As inflation rages, the value of the nonmonetary asset will adjust and the company won't or shouldn't lose purchasing power. The value of the liability, however, won't adjust and the company will experience a gain as the funds needed to liquidate it declines.
In stable currency situations, though, this argument doesn't obtain and the all current method makes more sense.
Regards,
Chuck
On Wed, Nov 17, 2021 at 3:00 PM (Rommel Monet) wrote:
Hi again Dr Mulford.
I was reviewing your chapter on consolidations and foreign currency restatements in “Guide to Financial Reporting” and noticed this commentary:
“The all-current and temporal methods are applied in different circumstances, and they can produce quite different results. In particular, as shown above, the translation adjustments are different because currency exposure is altered under these two methods. Moreover, translation adjustments under the all-current method are consigned to other comprehensive income and are not part of the conventional net income that is the focus of most statement users. Whether there are real economic differences that justify financial statement effects that can be so different is an issue on which there is little evidence” (italics mine - p 319-320 “Guide to Financial Reporting and Analysis”, Comiskey & Mulford, John Wiley and Sons, copyright 2000).
I have always felt that way!
I feel that the Temporal Method introduces errors into the financial statements of the consolidated entity. There is no sensible justification for holding “non-monetary” assets at an old, irrelevant “Hist” FX rate when “remeasuring” into this false-construct called “functional currency”… all while allowing the liability which financed that asset (invariably “monetary”) to (sensibly) use the SPOT rate.
Only the Current Rate method should be used.
I find it hard to believe I am the only one who sees the blatant error in the Temporal Method. I hope I am just confused, because this has been in effect since the 70s I think.
(Rommel)
***
From: OCA
Sent: Thursday, November 18, 2021 5:47 AM
To: (Rommel Monet)
Subject: RE: GAAP questions & concerns (ASC 830)
EXTERNAL EMAIL
Good Morning. You may submit the paper to this email account and it will be forwarded to staff for review. Thank you for your inquiry.
From: (Rommel Monet)
Sent: Wednesday, November 17, 2021 11:46 AM
To: OCA
Cc: Rule-Comments
Subject: GAAP questions & concerns (ASC 830)
CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you recognize the sender and know the content is safe.
Good morning,
I work in the field of lease accounting as a CMA, and observe lease accounting data in foreign currency (of foreign Subs) which must be restated to the reporting currency of the parent for purposes of producing consolidated financial statements.
After reading the theoretical justification outlined in ASC 830 and IAS 21 (as well as PWC, E&Y guides, and advanced accounting texts, such Skekel & Bline and Comiskey & Mulford [*]), I conclude that:
--while the “Current Rate Method” of “translation” from Local Currency (of the Subsidiary) to Reporting Currency (of the Parent) produces no theoretical errors in the consolidated financial statements,
-- the “Temporal Method” of “remeasurement” (from the Local Currency of the Sub to its “Functional Currency”) does introduce errors into the financial reports of the consolidated entity and that the error is self-evident. The cause of the error being that assets and liabilities (which are unnecessarily differentiated as “non-monetary” or “monetary) with a “non-monetary” designation are to be “remeasured” into the “Functional Currency” (which is nothing more than a false construct) using irrelevant (old) “Historical” FX rates. This mis-states the value of the asset or liability and produces spurious FX gains / losses on the books of the SUB (in Earnings, not OCI). Most assets are of a “non-monetary” nature while most liabilities that financed those assets are of a “monetary” nature. When the Temporal Method is employed, it illogically converts the asset at an old “Hist” FX rate, while allowing the liability that financed that asset to use (sensibly) the SPOT rate. The resulting imbalance in the converted trial balance means an FX gain/loss is needed to plug the books, -- this FX loss being “phony” and results from using this irrelevant “Hist” FX rate.
I have written a paper on the matter and wish to submit it to the SEC (not the FASB, as they will not view it with an open mind, being indoctrinated with the concept of “functional currency” as being a legitimate thing (-it is not)).
Is there an SEC address I can submit said paper to? My objective is nothing more than cleaning up poor GAAP rules. My proposal is not to force companies to drop the Temporal Method, but to allow new companies to ignore the requirement of “determining functional currency” and allowing them to simply always convert the accounts of their foreign Subs using Current Rate Principles. That is, this proposal would not cause any disruption and it would clean up future financial reporting.
Sincerely,
(Rommel Monet), CMA
[*] Comiskey and Mulford write in “Guide to Financial Reporting and Analysis”:
“The all-current and temporal methods are applied in different circumstances, and they can produce quite different results. In particular, as shown above, the translation adjustments are different because currency exposure is altered under these two methods. Moreover, translation adjustments under the all-current method are consigned to other comprehensive income and are not part of the conventional net income that is the focus of most statement users. Whether there are real economic differences that justify financial statement effects that can be so different is an issue on which there is little evidence” (italics mine - p 319-320 “Guide to Financial Reporting and Analysis”, Comiskey & Mulford, John Wiley and Sons, copyright 2000).
***
Ted Skekel
Tue, Aug 13, 2019, 1:04 PM
to me
(Rommel) -
It is funny that you reached out to Dennis – he is still involved (a baby compared to me) and I have no doubt he gave you sound guidance. By the way you were fortunate to have had the opportunity to cross paths with Eugene Comiskey. He was/is a highly respected professional in both the academic and “real world” circles.
Sometimes while you are in school you have no idea of the stature of your professors. For example, I did my undergraduate work at Florida State. I had two classes with Dr. Homer Black and was mentored by him. But it was several years later before I learned of his significant contribution in developing the modern day income statement format (which included the first division of operating and non-operating results) – all of which was published about the time I began my studies at the Business School of FSU. Dr. Black was so humble and understated that I did not know that he had such achievements until after I departed FSU. Go figure – right?
Good luck to you – Ted
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