A Profile Analysis Of The Predictability Of Accounting Earnings Numbers After FAS52

Abstract

According to the Statement of Financial Accounting Concepts No. 2, usefulness of accounting earnings numbers stems partially from its predictive ability.  In 1981 the FASB replaced FAS8 with FAS52.  FAS52 offered multinational companies two choices:  (1) several possible adoption dates; (2) choice of a functional currency.  This study uses financial analysts’ earnings forecast to test the hypothesis that the change in foreign currency translation rule from FAS8 to FAS52 has improved earnings forecasting.  Profile analysis of the data does not support the hypothesis.