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Saturday, 17 May 2008

IAS 29 versus revoking the stable measuring unit assumption.

Restatement in terms of the hyperinflation rate as required by International Accounting Standard IAS 29 Financial Reporting in Hyperinflationary Economies is simply the restatement of Historical Cost Accounting financial reports with the intention of making them more meaningful in a hyperinflationary economy like Zimbabwe.

Restated values become the actual new real values when the restated financial reports are accepted by a country´s tax authorities for the purpose of calculating annual taxes due.

The restated values will not be actual real values when the tax authorities do not accept them for the purpose of calculating annual taxes due.

IAS 29 has no effect at all on the hyper destruction of the real economy in a hyperinflationary country because restatement is not done on a daily basis in terms of a dialy index rate or a daily parallel hard currency rate. IAS 29 is almost a complete failure. It can stop the hyper destruction of the real economy in a country with hyperinflation if it required the daily restatement of all non-monetary items.


Revoking the stable measuring unit assumption will change the current accounting and economic paradigm from the Historical Cost paradigm to the Real Value paradigm in low, high and hyperinflationary economies.

The stable measuring unit assumption can be revoked in a single company, group of companies, single economy, economic region or world wide.

It will replace the Historical Cost Accounting model with the Real Value Accounting model. The current HCA model automatically becomes the RVA model only at zero inflation.

It will stop the perennial destruction of hundreds of billions of Euros of real value in the real economy world wide.

It will result in the automatic monthly updating in terms of the Consumer Price Index of salaries, wages, rents, fees, royalties, retainers, issued share capital, retained income, share premium and share discount account balances, trade debtors, trade creditors, income taxes, company taxes, value added taxes and all profit and loss account items, etc in non-hyperinflationary economies.

The above items will be updated on a daily basis in terms of a daily index rate or a daily parallel hard currency rate in a hyperinflationary economy.

It will result in 0% inflation only in the real economy with continued cash inflation in the cash economy.

The stable measuring unit assumption is a Historical Cost Accounting principle implemented by Chartered Accountants only for the purpose of valuing the above constant value items never or not fully updated.

Chartered Accountants unwittingly destroy the real economy in this manner.