Different Approaches to Measure Conversion of Financial Statements and Disclosure Issues

Introduction

The currency of an entity's primary economic environment has been defined as the functional currency. A functional currency does not exist in a group, but the functional currency is determined at the level of each group entity (Ball, Li & Shivakumar, 2015). Determining each functional currency at each component of a group is made by looking at several factors. Stakeholder theory, institutional theory, signaling theory, legitimacy theory, and socioeconomic theory are all capable of explaining why commercial, public, and third-sector entities choose to engage in sustainability reporting.

In recent years, there has also been an increase in interest in understanding how sustainability-related activities affect a company's profitability, as numerous governments, market regulators, and operators have started to establish regulations and laws requiring corporations to report their environmental and social effects (Al Lawati & Hussainey, 2022).

When accounting for transactions denominated in foreign currency or translating financial statements into the presentation currency, the International Accounting Standard (IAS) should be applied (Iatridis, 2010; Guthrie & Parker, 2016). When the currency in which the financial statements are created differs from the presentation currency, the conversion occurs (Zéghal et al., 2011; Lobo & Zhou, 2001). Concerning financial statement conversion, it should be highlighted that this standard only applies if the entity whose financial statements are converted has a functional currency that is not a hyperinflationary economy (Jones & Smith, 2012; Watts & Zimmerman, 1978; Ball et al., 2015).

The presence and impact of possible voting rights that are now exercisable or convertible, including potential voting rights owned by other companies, will be taken into consideration when determining whether there is considerable influence (Choi et al., 2013; Barth et al., 2008; Cairns et al., 2011). An entity may own warrants on shares, options to acquire stocks, debt or equity securities that are convertible into common shares or other financial instruments, which, if exercised or converted, can either give an entity that possesses greater voting rights or diminish the voting rights of another party's financial and operating policies. Potential voting rights that are now exercisable or convertible must be taken into consideration (i.e. potential voting rights).

Because they are not currently usable or convertible, any potential voting rights that cannot be exercised or converted until a future date or until an event occurs are regarded to be inactive. If the investor loses the ability to participate in decision-making about the investee entity's financial and operating policies, we may argue that it has lost considerable influence (Allen & Ramanna, 2013; Bozec, 2008; Tendeloo & Vanstrelen, 2005).

A sort of shared commitment is known as a joint venture in which the partners share control over the enterprise and the rights to its net assets (Daske & Gebhardt, 2006; Marra et al., 2011). For joint commitments, each party has rights to the assets and responsibility for liabilities associated with the agreement (Ghosh & Olsen, 2008; Landsman, Maydew, & Thornock, 2012). This is referred to as a joint venture business, and it is not discussed in this literature, nor do we use the equity technique (Pieper, Trevor, Weller & Duchon, 2017).