Some firms, like those in Japan, defer translation gains or losses and amortize these adjustments more than the life of related balance sheet items. As an example, assume that the acquisition of a fixed asset is financed by issuing debt. It can be argued that principal and interest payments on the debt are covered by cash flows generated from making use of the fixed asset. Here, the translation get or loss associated with the debt could be deferred and amortized over the life of the related fixed asset, that's, released to earnings in a manner compatible with depreciation expense. Alternatively, the translation get or loss arising from the debt might be deferred and amortized over the remaining life of the debt as an adjustment to interest expense.
Such approaches are criticized by some on theoretical and practical grounds. For example, finance theory tells us that capital budgeting decisions about fixed asset investments are independent of choices about ways to finance them. Linking the two looks extra like a device to smooth earnings. Adjusting interest expense is also suspect. Domestic borrowing fees are not adjusted to reflect changes in market place interest rates or the fair value from the debt. Therefore, the argument goes, why ought to fluctuations in currency values have such an effect?
