Pages

Friday, 5 September 2008

Inflation destroys an extra R212.54 billion in real value and Mboweni gets a 27% salary increase.


When our Chartered Accountants stop the stable measuring unit assumption as they are allowed to do by International Financial Reporting Standards as issued by the International Accounting Standards Board then workers´ salaries will automatically be inflation-adjusted on a monthly basis and their standard of living will be maintained year after year.

That will also stop our CAs destroying about R200 billion in real value in our real economy each and every year.

In the IASB´s

Framework for the Preparation and Presentation of Financial Statements

Par 104 (a) it is stated:

“Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.”

Measuring financial capital maintenance in units of constant purchasing power means rejecting the stable measuring unit assumption.

IFRSs thus allow the Historical Cost Accounting model and at the same time they also allow our Chartered Accountants the option of rejecting the stable measuring unit assumption when they allow them to measure financial capital maintenance in units of constant purchasing power.

A year ago inflation stood at 7%. It is now 6.4 percentage points higher at 13.4%. A 1% increase in inflation destroys an extra R18.29 billion in the real value of the Rand and about an extra R14.92 billion in the real or non-monetary economy because our CAs assume there is no inflation when they apply the stable measuring unit assumption. That means that the 6.4% increase in inflation destroyed an extra 6.4 X (18.29 + 14.92) = R 212.54 billion during the last year.

So under Mboweni´s watch an extra R212.54 billion have been destroyed in the SA economy during the last year and he gets a 27% increase in salary.

When our CAs stop the stable measuring unit assumption the destruction of real value in the non-monetary or real economy will be zero. That will help Mboweni a lot.

That will take care of about half of the real value destroyed by inflation and in the case of the non-monetary economy, the destruction by the combination of inflation and our CAs stable measuring unit assumption that they can stop in terms of IFRSs any time they want to.