Abstract
This study tested the gap between foreign exchange accounting treatment and the underlying economic reality, by comparing the regression model between U.S. Companies and Indonesian Companies in one particular economic period. A total sample of 139 companies, consisting of 60 companies with rupiah functional currency domiciled in Indonesia and 79 companies with dollar functional currency domiciled in the United States. The simple regression variable used is comprehensive profit as a dependent variable and foreign exchange gain and loss as an independent variable. Hypothetical conclusions are carried out by testing regression patterns on the underlying economic circumstances. The results of the statsitik regression corssection test showed significant value indicating the influence between variables on a number of companies that have a uniform pattern, conclusions are strengthened by considering the economic situation in the data retrieval situation using criteria such as currency exchange rate, GDP, trade balance and others on each country, while insignificant influence indicates the opposite. Based on the test results and economic analysis shows the results of regression that signfikan in each region with economic conditions that support fluctuations in exchange rate changes in each region. So it is concluded that there is no difference between the treatment of foreign exchange accounting and the underlying economic reality.
Highlights
Fluctuations in exchange rates have a significant impact on the economic performance of a country, the occurrence of economic crises that have an infectious effect between countries in the decades that have passed inseparable from fluctuations in the exchange rate of one country's currency with other countries
Research has been conducted to explain the impact of currency exchange rate changes on the company's value (Dhagat, Raju G 2016), in some cases research has been conducted to explain the company's management efforts to mitigate the impact of exchange rate turmoil on its operations and investments by hedging transactions and investments exposed by foreign exchange fluctuations (Anuradha 2019)
Seandy Ginanjar impact of foreign exchange fluctuations is the result of losses and losses arising from changes in the exchange rate on operating activities and investments related to foreign currencies in both the balance sheet and profit and loss. (FASB, 1981)
Summary
Fluctuations in exchange rates have a significant impact on the economic performance of a country, the occurrence of economic crises that have an infectious effect between countries in the decades that have passed inseparable from fluctuations in the exchange rate of one country's currency with other countries. Profits and losses caused by changes in foreign exchange in general are due to two things, namely transactions made from international trade and consolidated activities of financial statements of subsidiary or branches operating abroad. Attention to the study of the impact of fluctuations in exchange rates on foreign exchange transactions, was found when companies faced exposure to the value of assets or liabilities to foreign exchange risks, which directly affected their cash flow and profitability when monetary transactions were realized. Hedging is carried out with the aim of providing protection for the purpose of protecting such transactions, or at least reducing the impact of risks, linking profits and losses on foreign exchange financial derivatives (instrument hedging) with losses and profits against items subject to foreign exchange hedging
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