Translation gains and losses and firms' accounting choices: UK evidence on and before SSAP No. 20

In the light of foreign exchange (FX) rate fluctuation, this paper concentrates in the accounting choices of firms and their motivation to adopt or defer the adoption of the UK Statement of Standard Accounting Practice (SSAP) No. 20 "Foreign Currency Translation". The paper provides evidence that the implementation of SSAP No. 20 has improved the financial accounting measures of firms, such as profitability and leverage. The effects of the standard tended to be more substantial for adopters that exhibited larger size and higher leverage measures. In the absence of a clear regulatory framework, prior to SSAP No. 20, the financial reporting of translation gains and losses displayed significant variation and inconsistencies. Overall, firms anticipated the issue of SSAP No. 20 and tended to recognise the translation differences in the balance sheet.