Financial Accounting Standards Board Statement No 8

Summary of Financial Accounting Standards Board Statement No 8

A far-reaching and controversial pronouncement by the Financial Accounting Standards Board governing accounting practices used by American firms in transactions involving foreign currencies. The pronouncement, known commonly as FASB 8, came into effect for fiscal years beginning January 1, 1976. Among other important features, FASB 8 requires (1) that foreign subsidiaries of U.S. firms employ U.S. generally accepted accounting principles in measuring assets and liabilities; (2) that fixed assets, inventories, goodwill, and deferred income be valued, in terms of dollars, at the historical rate, i.e. the exchange rate for the foreign currency in effect at the time of the transaction; and (3) that most liquid assets and current liabilities be valued at the current rate, i.e., the rate of exchange in effect at the time of statement preparation irrespective of the rate in effect at the time the transaction occurred.

The statement was adopted in response to problems of valuing foreign transactions, a condition exacerbated by the high degree of fluctuation among major currencies following the collapse of the system established by the Bretton Woods Agreement (read this and related legal terms for further details) in 1971. FASB 8 has been an object of criticism before and since its adoption; in 1981, the Financial Accounting Standards Board published financial accounting standards Board Statement No. 52 (read this and related legal terms for further details), replacing FASB 8 effective not later than December 15, 1984.

(Main Author: William J. Miller)