Copy of comment on the thread: "R57.984 billion real value destroyed by CAs in 169 JSE listed companies" started by SAICA on the SAICA Discussion Forum:
Submitted by: Nicolaas Smith
Date Submitted: 31 August 2008
[1] SAICA,
You state: “… we committed to and support IFRS as issued by the IASB.”
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 HCA model and at the same time they also allow companies the option of rejecting the stable measuring unit assumption when they allow them to measure financial capital maintenance in units of constant purchasing power.
It is absolutely clear from your statement:
“We do not concur with the suggestion that the standards should reject the stable unit measuring assumption.”
that you do not support IFRSs as issued by the IASB when they allow companies to reject the stable measuring unit assumption when they choose to measure financial capital maintenance in units of constant purchasing power.
This will come as a complete surprise to everybody in South Africa.
Nicolaas Smith
http://realvalueaccounting.blogspot.com/
Sunday, August 31, 2008
SAICA defiantly refuses to support IFRSs allowing companies to reject the stable measuring unit assumption
Saturday, August 30, 2008
SAICA, don´t worry about it: we all make mistakes. :-)
Copy of comment on the thread: "R57.984 billion real value destroyed by CAs in 169 JSE listed companies" started by SAICA on the SAICA Discussion Forum:
Submitted by: Nicolaas Smith
Date Submitted: 31 August 2008
[1] SAICA,
I suggest you place an add on your website for some-one with a good knowledge of IASB policies, because you do not seem to have that.
I can even apply. lol I seem to know more than you do about IASB policies.
You must be getting worried. The situation is going from bad to worse for you.
First you deleted my original comment that CAs in 169 JSE listed companies are destroying about R50 billion in the real value of their companies´ Retained Earnings balances each and every year, then you stated that it is an insult to inflation-adjust accounts in a low inflation environment (the SA economy where salaries and wages and many other items are inflation-adjusted every year) and now we find out that you did not know that it is offial IASB policy for a long time already to allow companies the option to reject the stable measuring unit assumption by choosing to maintain capital in units of constant purchasing power.
You actually ignorantly defy the IASB by stating that:
"We do not concur with the suggestion that the standards should reject the stable unit measuring assumption.”
What kind of an Institute are you when you do not know IASB policy?
R200 billion per annum in real value destroyed in the real economy by CAs choosing the wrong option is one hellavu big number in real value destroyed in the SA economy.
And now, on top of everything, you want to aid and abet them in their mistaken choice.
Don´t worry about it. I also make many mistakes. :-)
As long as we get to fix the problem. That is what counts. What happens in between we can write off to experience.
Kind regards,
Nicolaas Smith
http://realvalueaccounting.blogspot.com/
SAICA, your ignorant and defiant statement is contrary to IASB policy
Copy of comment on the thread: "R57.984 billion real value destroyed by CAs in 169 JSE listed companies" started by SAICA on the SAICA Discussion Forum:
Submitted by: Nicolaas Smith
Date Submitted: 31 August 2008
[1] SAICA,
For your information: The IASB officially allows the option of rejecting the stable measuring unit for a long time already.
Your statement: “We do not concur with the suggestion that the standards should reject the stable unit measuring assumption.” reveals your ignorance of official IASB policy.
The IASB already allows the option of rejecting the stable measuring unit assumption.
Your ignorant and defiant opposition to the rejection of the stable measuring unit assumption that is already official IASB policy for a long time is exceptionally negative behaviour for an accounting authority and you are transmitting the completely wrong idea to business in South Africa.
Even more damaging: your attempt to shift the blame to the SA government as “a matter of economic policy and economic growth” is really deplorable.
There is obviously something seriously wrong with the accounting profession in South Africa if we insist in carrying on destroying the real value of all our constant real value non-monetary items never or nor fully updated in our real economy at the rate of inflation amounting to about R200 billion per annum when the rejection of the stable measuring unit assumption is officially allowed as an IASB policy for a long time.
You state that:
“It would make no sense for SAICA or the Accounting Practices Board to consider making any changes to the accounting standards as we committed to and support IFRS as issued by the IASB.”
Neither you nor the Accounting Practices Board has to make any changes to the accounting standards as issued by the IASB since rejecting the stable measuring unit assumption is already explicitly allowed as an option by the IASB.
I am reminding you for the umpteenth time that nowhere in any IFRS are SA companies required to implement the HCA model. You cannot prove me wrong. You know this very well. Hence your false statement that “this is a matter of economic policy and economic growth” with which you try to pass the blame to the SA government. That is not true. It is not a matter of economic policy and economic growth.
The IASB simply states in IAS 29, par 6: ““In most countries, primary financial statements are prepared on the historical cost basis of accounting without regard either to changes in the general level of prices or to increases in specific prices of assets held, except to the extent that property, plant and equipment and investments may be revalued.”
The IASB does not state “Primary financial statements are required to be prepared on the historical cost basis of accounting.” The HCA model is thus not a requirement.
In the IASB´s Framework for the Preparation and Presentation of Financial Statements
Concepts of Capital and Capital Maintenance
Concepts of Capital
102. A financial concept of capital is adopted by most entities in preparing their financial statements. Under a financial concept of capital, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the entity.
Par 102 thus allows updating capital at the rate of inflation in a low inflationary environment. The only way you maintain purchasing power is to update at the rate of inflation in a low inflationary economy.
103. The selection of the appropriate concept of capital by an entity should be based on the needs of the users of its financial statements.
The needs of users in South Africa are to maintain real value created in the economy and not to destroy it at the rate of inflation in constant real value non-monetary items never or not fully updated in the SA real economy to the amount of about R200 billion per annum.
Par 103 continued:
Thus, a financial concept of capital should be adopted if the users of financial statements are primarily concerned with the maintenance of nominal invested capital or the purchasing power of invested capital.
We are primarily concerned in SA with maintenance of the purchasing power of invested capital. We know that invested capital is the same as shareholders equity. We can also prove in actual verifiable Rand amounts that only our 339 JSE listed companies destroy about R100 billion only in the real value of Retained Earnings balances each and every year because Chartered Accountants in those 339 companies do not opt for maintaining capital in terms of units of constant purchasing power. They make the other option allowed by the IASB: they opt to maintain capital in nominal terms only thus implementing the stable measuring unit assumption that results in them destroying the real value of Retained Earnings in all SA companies with Retained Earnings balances. We want to stop that.
Par 103 continued:
The concept chosen indicates the goal to be attained in determining profit, even though there may be some measurement difficulties in making the concept operational.
Our goal is to determine profit correctly in terms of constant purchasing power and to maintain the constant purchasing power of constant items in our companies and in our real economy.
We do not foresee measurement difficulties since our updating at the CPI rate will be a sound measure.
Concepts of Capital Maintenance and the Determination of Profit
104. The concepts of capital in paragraph 102 give rise to the following concepts of capital maintenance:
(a) Financial capital maintenance. Under this concept a profit is earned only if the financial (or money) amount of the net assets at the end of the period exceeds the financial (or money) amount of net assets at the beginning of the period, after excluding any distributions to, and contributions from, owners during the period. Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.
The concept units of constant purchasing power means: updating constant real value non-monetary items, on a primary valuation basis, at the rate of inflation in a low inflationary environment.
Rejecting the stable measuring unit assumption is thus specifically allowed by the IASB.
105. The concept of capital maintenance is concerned with how an entity defines the capital that it seeks to maintain. It provides the linkage between the concepts of capital and the concepts of profit because it provides the point of reference by which profit is measured; it is a prerequisite for distinguishing between an entity’s return on capital and its return of capital; only inflows of assets in excess of amounts needed to maintain capital may be regarded as profit and therefore as a return on capital. Hence, profit is the residual amount that remains after expenses (including capital maintenance adjustments, where appropriate) have been deducted from income. If expenses exceed income the residual amount is a loss.
The capital maintenance adjustment expense to be deducted in the Profit and Loss account is Net Monetary Loss in the case of capital maintenance in units of constant purchasing power. This authorizes the accounting deduction of the cost of inflation from profit.
106. …The financial capital maintenance concept, however, does not require the use of a particular basis of measurement.
SAICA, there you have it. The IASB allows you to choose the basis of measurement. You support SA companies´ choice of the HCA model which includes the devastatingly destructive stable measuring unit assumption under inflationary conditions. The IASB allows them to choose not to implement the stable measuring unit assumption.
You, contrary to and in defiance to the IASB´s even handed approach, state: “We do not concur with the suggestion that the standards should reject the stable unit measuring assumption.”
You, SAICA, officially do not concur with the IASB allowing entities to reject the stable measuring unit assumption.
SAICA, are you going to inform the IASB of your opposition to their statement in The Framework, or do you want me to inform them. I am not a member of SAICA, so I cannot do that officially. You better inform them as soon as possible. All I can do is send them a copy of your statement.
I propose that SA companies and the whole of SA reject the unbelievably destructive stable measuring unit assumption as allowed by the IASB.
Par 105 authorizes the deduction of the cost of inflation as a Net Monetary Loss from profits in the Profit and Loss account.
Par 108 authorizes the updating of all constant real value non-monetary items in the following statement: (The IASB is actually quite well informed, I must say. Much better than SAICA. SAICA appears to be an amateur compared to the IASB. Imagine SAICA stating: “We do not concur with the suggestion that the standards should reject the stable unit measuring assumption.” when the option of its rejection is an actual official IASB policy – for a long time already.)
108. ... When the concept of financial capital maintenance is defined in terms of constant purchasing power units, profit represents the increase in invested purchasing power over the period. Thus, only that part of the increase in the prices of assets that exceeds the increase in the general level of prices is regarded as profit. The rest of the increase is treated as a capital maintenance adjustment and, hence, as part of equity.
Par 108 authorizes the updating of Retained Earnings and all items in Shareholders Equity as well as all other constant real value non-monetary items.
Well done IASB.
110. The selection of the measurement bases and concept of capital maintenance will determine the accounting model used in the preparation of the financial statements.
It is thus open to CAs to choose to prepare SA companies´ accounts in terms of constant purchasing power units thus rejecting the stable measuring unit assumption in defiance to SAICA´s ignorant statement that “We do not concur with the suggestion that the standards should reject the stable unit measuring assumption.”
Different accounting models exhibit different degrees of relevance and reliability and, as in other areas, management must seek a balance between relevance and reliability.
Switching over to preparing SA entities´ accounts in terms of constant purchasing power units is very relevant to management in the light of the fact that that we can now show that the combination of inflation and the stable measuring unit assumption, as chosen by CAs, destroys at least R200 billion in our real economy every year.
This Framework is applicable to a range of accounting models and provides guidance on preparing and presenting the financial statements constructed under the chosen model. At the present time, it is not the intention of the Board of IASC to prescribe a particular model other than in exceptional circumstances, such as for those entities reporting in the currency of a hyperinflationary economy. This intention will, however, be reviewed in the light of world developments.
SAICA you do not have this even-handed and well-informed approach. Your ignorant and defiant statement that “We do not concur with the suggestion that the standards should reject the stable unit measuring assumption.” when the IASB already allows that option for a long time needs to be retracted as soon as possible.
You are supposed to develop, influence and lead as you state on your website, not ignorantly defy what is already IASB policy – to the detriment of the whole of South Africa.
Nicolaas Smith
www.realvalueaccounting.blogspot.com
Thursday, August 28, 2008
SAICA your statement has absolutely no substance.
Copy of comment on the thread: "R57.984 billion real value destroyed by CAs in 169 JSE listed companies" started by SAICA on the SAICA Discussion Forum:
Submitted by: Nicolaas Smith
Date Submitted: 28 August 2008
[1] SAICA, you state that you strongly disagree with my “accusations” that accountants are destroying value. I do not remember that I have ever stated that I “accuse” Chartered Accountants of destroying value. I state that CAs unknowingly, unintentionally and unwittingly destroy the real value of all constant real value non-monetary items never updated (e.g. Retained Earnings) or not fully updated in the South African real economy at the annual rate of inflation to a conservatively estimated amount of about R200 billion plus per annum when they choose to implement the stable measuring unit assumption – a Generally Accepted Accounting Practice – as part of the Historical Cost Accounting model.
Geoff Everingham, Professor of Accounting at the University of Cape Town agrees with me that inflation is part of the process that destroys the real value of constant real value non-monetary items never of not fully updated, when he states: “There is no question that inflation does this (destroy value) to all monetary items and to non-monetary items which do not hold their value in terms of purchasing power.”
It is the combination of inflation and the stable measuring unit assumption that destroys the real value of all “non-monetary items which do not hold their value in terms of purchasing power”.
Chartered Accountants choose to implement the stable measuring unit assumption. They are not forced to do that by the SA government - as you are now falsely implying. I have stated this to you before on this thread but you fail to specify where in the SA Companies Act, or SA GAAPs or IASB IFRSs CAs are forced to implement the stable measuring unit assumption. Since they are not – as you well know, you now falsely imply that they are forced by the SA government to do that. That is not true. The SA Government will not fall for your false statement.
I will give you a very clear example:
At the end of year one the company CA in a hypothetical company reported that there was, inter alia, R 1 million cash in a zero interest bank account and that the Retained Earnings balance was R 1 million. The CA decided that the company will do its accounting based on the Historical Cost Accounting model. The company was completely dormant during the second financial year. At the end of the second year the board of directors decided to pay the single owner a dividend of R1 million. Inflation was 13.4% at the end of the second year.
It is very clear that in terms of Geoff Everingham´s statement, cash inflation destroy 13.4% of the real value of the R1 million in the zero interest bank account .
Since Retained Earnings is a non-monetary item which do not hold its value in terms of purchasing power as per Geoff Everingham´s statement it is also very clear that the combination of the stable measuring unit assumption (whereby the CA assumed that the Rand was stable as far as the accounting of Retained Earnings was concerned) and 13.4% inflation destroyed 13.4% of the real value of the R1 million Retained Earnings balance during the second year.
SAICA, we all know you understand the above example very well. Your statement that “We have noted what Mr Nicolaas Smith is saying and strongly disagree with his accusations that accountants are destroying value” thus has no substance at all. CAs choose to implement the stable measuring unit assumption. They are not forced by the SA government or by anyone or anything to do that. They can stop any time they want.
This happens in all SA companies with Retained Earnings balances in the companies.
You state: “We recognise that inflation influences reported results, but this is a matter of economic policy and economic growth.” You are implying that SA companies implement the HCA model as “a matter of economic policy and economic growth” That is not true. You are incorrectly implying that SA companies implement the HCA model in accordance with the SA Government´s greater economic policy as it affects economic growth. CAs destroy value using the HCA model. They do not aid in economic growth by implementing the stable measuring unit assumption. On the contrary, they are killing the real economy to the tune of about R200 billion each and every year.
CAs implement the HCA model because choosing it as the basic accounting model is generally accepted. The destruction of real value in the real economy is thus an integral part of the HCA model. CAs unknowingly choose that when they choose the generally accepted HCA model.
You state: “Remeasuring reported results would be undesirable in South Africa where the monetary authorities are seeking to contain inflation.”
The above statement clearly shows your complete lack of understanding of what it would mean and what would happen when CAs stop the stable measuring unit assumption.
The abandoning of the stable measuring unit assumption would obviously lead to zero inflation in the real economy – or zero destruction of real value in the real economy. That is the perfect solution for inflation in the real economy.
All constant items would maintain their real values.
It does nothing to inflation in the monetary economy.
But, it maintains the real value of all constant items in the real economy. That is: 0% inflation in the real economy or maintaining about R200 billion (or maybe even double that) plus in real value in the real economy forever. I can assure you that that would warm the SA government´s heart quite a lot – and everyone´s in South Africa.
It would also make a Zimbabwe situation in the SA economy impossible.
What I propose is not “Remeasuring reported results” of all accounts on a primary valuation basis as you so blindly and stubbornly insist upon, but inflation-adjusting on a primary valuation basis only all constant real value non-monetary items as they are accounted on a day to day basis during the month and at every date the CPI value changes.
Unfortunately you state: “Ultimately, inflation-adjusted accounts in a low inflation environment insult the user by implying that he lacks the sense to arrive at his own conclusions; by suggesting that he needs his hand held when he is instinctively aware of the route he should take to reach his goal.”
It is all about inflation-adjusted accounts, but, only all constant real value non-monetary items. Not variable items and monetary items on a primary valuation basis. Only constant items. You say this is an insult to the user.
All salaries and wages and many other values are already inflation-adjusted in SA. You say that is an insult to the user. You say this is an insult to South Africa.
You are basically saying everything I propose – inflation-adjusting constant real value non-monetary items – is an insult to the user – to South Africa.
Your statement has absolutely no substance.
Nicolaas Smith
http://realvalueaccounting.blogspot.com/
SAICA implies that SA government and not CA´s responsible for destroying the real economy
Copy of comment on the thread: "R57.984 billion real value destroyed by CAs in 169 JSE listed companies" started by SAICA on the SAICA Discussion Forum:
Submitted by: SAICA
Date Submitted: 27 August 2008
[1] We have noted what Mr Nicolaas Smith is saying and strongly disagree with his accusations that accountants are destroying value.
We recognise that inflation influences reported results, but this is a matter of economic policy and economic growth.
Remeasuring reported results would be undesirable in South Africa where the monetary authorities are seeking to contain inflation.
It would make no sense for SAICA or the Accounting Practices Board to consider making any changes to the accounting standards as we committed to and support IFRS as issued by the IASB.
We do not concur with the suggestion that the standards should reject the stable unit measuring assumption.
SAICA will make no further response to Mr. Smith's missives as we have clearly outlined our views.
SAICA
Wednesday, August 27, 2008
Censored by SAICA - No 2
Copy of thread on the SAICA Discussion Forum:
Submitted by: Nicolaas Smith
Date Submitted: 27 August 2008
[1] SAICA arrogantly continues with it´s modus operandi of deleting a comment it does not like or this last one for no apparent reason.
SAICA will find it very difficult to deal with the process that has now started to get the stable measuring unit assumption abandoned in South Africa when it carries on with this deplorable policy of censoring comments it does not like on this forum.
The following comment was censored by SAICA on the 27 th August, 2008.
"Submitted by: Nicolaas Smith
Date Submitted: 8 December 2008
[1] I have already written one book about this subject: "RealValueAccounting.Com - The next step in our fundamental model of accounting".
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=946775
I have just searched the text file. I only mention Zero Inflation Accounting under a theoretical discussion about accounting at zero inflation. The term "inflation accounting" does not appear even once in the text of the book. I do not deal with inflation accounting - as you can see.
The term Inflation Accounting only appears in the bibliography of the book as the title of Geoff Whittington´s book: Inflation Accounting – An introduction to the debate.
Author Geoffrey Whittington.
I only read his book because he asked my why I have not read it. I found nothing about the stable measuring unit assumption in his book. I think the term is not even mentioned in his book.
Nicolaas Smith
http://realvalueaccounting.blogspot.com"
I have a copy of it in its uncensored form.
As can be seen from the censored comment it has a date of submission of "8 December 2008" It is only the 27th August 2008 today.
I submitted the comment on the 12th August 2008.
SAICA stop behaving like a little dictator in some banana republic. You obviously will fit in well in North Korea, Burma and Zimbabwe.
Nicolaas Smith
http://realvalueaccounting.blogspot.com
R63.241 billion real value destroyed by CAs in 169 JSE listed companies
Updated: July 2008
Annual amount unknowingly being destroyed by South African Chartered Accountants in the real value of Retained Earnings in 169 companies listed on the Johannesburg Stock Exchange as a result of their implementation of the stable measuring unit assumption which is a Generally Accepted Accounting Practice:
R63.241 billion
This is a conservative calculation of the actual real value unintentionally destroyed by CAs during the 12 months to the end of July 2008 in the 169 JSE listed companies analyzed to date.
Current rate at which SA Chartered Accountants are unwittingly destroying the real value of all retained earnings balances in South African companies: 13.4% per annum.
SA Chartered Accountants are unknowingly killing the real economy in a massive way.
Next update: When the August 2008 CPI figure is released by Stats SA.
[Real Value date: July 2008 CPI 163.8 Annual monetary and non-monetary real value destruction rate: 13.4%. The non-monetary destruction rate applies to constant non-monetary items never updated, e.g. retained earnings. The above Rand value will be updated monthly in terms of future changes in the CPI.]
Thursday, August 21, 2008
SAICA, Do you agree with Geoff Everingham that inflation destroys the value of non-monetary items which do not hold their purchasing power?
Copy of thread on the SAICA Discussion Forum:
Submitted by: Nicolaas Smith
Date Submitted: 18 August 2008
[1] SAICA,
This is what Professor Geoff Everingham from the University of Cape Town stated to me in an email:
“I think the fundamental difference between us has to do with what we mean by destroying value. There is no question that inflation does this to all monetary items and to non-monetary items which do not hold their value in terms of purchasing power.”
There is no difference between me and Prof Geoff Everingham on this point. I don't understand why he states there is a fundamental difference between us on this point.
Do you agree with Prof Everingham that inflation destroys the value of non-monetary items which do not hold their value in terms of purchasing power?
Or do you regard it as an insult to answer me since this will finally lead to South Africa inflation-adjusting all constant real value non-monetary items which you consider as an insult to everybody in South Africa since you state that:
“Ultimately, inflation-adjusted accounts in a low inflation environment insult the user by implying that he lacks the sense to arrive at his own conclusions; by suggesting that he needs his hand held when he is instinctively aware of the route he should take to reach his goal.”
Or would you rather delete this post as you deleted my original post about the R57.984 billion real value destroyed by Chartered Accountants in 169 JSE listed companies?
I must inform you that since I know you delete a post you do not like, I keep copies of these posts on your website.
Mrs Hester Hickey, Chairperson of SAICA, Do you agree with SAICA that: " Inflation-adjusted accounts in a low inflation environment insult the user?
Copy of list of comments on the SAICA Discussion Forum on the previous version of their website. The Discussion Forum has been removed completely from SAICA´s new website. Click on the image above.
Submitted by: Nicolaas Smith
Date Submitted: 18 August 2008
[1] Mrs Hickey,
If you do not want to answer me here in public, then I will send you the question by email. You and I have corresponded by email before.
This is a matter for the public. I think it would be better to answer here in publich since SAICA made that statement here in public.
Nicolaas Smith
http://realvalueaccounting.blogspot.com/
Submitted by: Nicolaas Smith
Date Submitted: 18 August 2008
[2] Mrs Hester Hickey,
As Chairperson of SAICA, do you agree with the following statement by SAICA?
“Ultimately, inflation-adjusted accounts in a low inflation environment insult the user by implying that he lacks the sense to arrive at his own conclusions; by suggesting that he needs his hand held when he is instinctively aware of the route he should take to reach his goal.”
Nicolaas Smith
Click on images to read SAICA´s statement on second image.
SAICA, prove this wrong: the stable measuring unit assumption and inflation destroy the real value of retained earnings.
Copy of thread on the SAICA Discussion Forum:
Submitted by: Nicolaas Smith
Date Submitted: 19 August 2008
[1] SAICA, prove this wrong: the stable measuring unit assumption and inflation destroy the real value of retained earnings.
Chartered Accountants choose to implement the stable measuring unit assumption.
Any first year accounting student will tell you the above are true facts. You seem not to understand the destruction of value in retained earnings by the combination of inflation and the stable measuring unit assumption.
To you it is an insult to every company in SA to inflation-adjust retained earnings and all constant items.
That insult would maintain R200 billion plus in the SA real economy every year.
I will teach you basic accounting step by step.
Nicolaas Smith
SAICA, you are a disgrace to the profession.
Copy of thread on the SAICA Discussion Forum:
Submitted by: Nicolaas Smith
Date Submitted: 20 August 2008
[1] SAICA, you are a disgrace to the profession.
After thinking about the matter a long time, I have come to the conclusion that there is sufficient justification to state that SAICA is a disgrace to the accounting and auditing profession and that SAICA brought the profession's name in disrepute.
My justifications are:
1.SAICA´s deletion of the following original post from the Discussion Forum on their website:
R57.984 billion real value destroyed by CAs in 169 JSE listed companies
Updated: June 2008
Annual amount unknowingly being destroyed by South African Chartered Accountants in the real value of Retained Earnings in 169 companies listed on the Johannesburg Stock Exchange as a result of their implementation of the stable measuring unit assumption which is a Generally Accepted Accounting Practice:
R57.984 billion
This is a conservative calculation of the actual real value unintentionally destroyed by CAs during the 12 months to the end of June 2008 in the 169 JSE listed companies analyzed to date.
Current rate at which SA Chartered Accountants are unwittingly destroying the real value of all retained earnings balances in South African companies: 12.2% per annum.
SA Chartered Accountants are unknowingly killing the real economy in a massive way.
Next update: When the July 2008 CPI figure is released by Stats SA.
[Real Value date: June 2008 CPI 160.4 Annual monetary and non-monetary real value destruction rate: 12.2%. The non-monetary destruction rate applies to constant non-monetary items never updated, e.g. retained earnings. The above Rand value will be updated monthly in terms of future changes in the CPI.]
http://realvalueaccounting.blogspot.com/
2. This statement by SAICA: “Ultimately, inflation-adjusted accounts in a low inflation environment insult the user by implying that he lacks the sense to arrive at his own conclusions; by suggesting that he needs his hand held when he is instinctively aware of the route he should take to reach his goal.”
I made a mistake by stating that this matter is closed between me, SAIC and Hester Hickey. I can admit when I made a mistake. We all learn from our mistakes and from admitting when we made a mistake. I do not know whether SAICA has the strength of character to do that.
This matter is still a completely open matter between me, SAICA and Hester Hickey.
SAICA´s integrity has gone down a lot over the last 18 years. 18 years ago SAICA would never have censored or banned or prohibited an article from a publication it controlled about a new development in accounting that, when implemented, will result in changing the basic paradigm in the economy as a whole, from the current Historical Cost paradigm to a Real Value paradigm.
We need strong institutions in our society. SAICA is one of the important institutions in the SA economy. It needs to be of complete integrity.
Doing what it did in the above two cases is not in agreement with complete integrity.
We need to strengthen our institutions in order not to end up where Zimbabwe is today.
For that reason, I have to do the above, although it is very unpleasant doing it.
I thus await a public apology from SAICA for stating that inflation-adjusted accounts is an insult to the user as well as a statement that it will not delete comments it does not like on its Discussion Forum.
SAICA, if you do not respond to this comment then I will take it that you agree with what I state in this comment or that you are too weak and internally debilitated to respond to my statements about your disgraceful behaviour.
Nicolaas Smith
Saturday, August 16, 2008
Abandoning the stable measuring unit assumption in South Africa
Copy of comment on the thread: "R57.984 billion real value destroyed by CAs in 169 JSE listed companies" started by SAICA on the SAICA Discussion Forum:
Submitted by: Nicolaas Smith
Date Submitted: 16 August 2008
[2] SAICA,
Here are some notes about abandoning the stable measuring unit assumption.
First of all, it is not the same as inflation accounting as can be found in many books and articles written about inflation accounting over the last 100 years.
That is why the term stable measuring unit assumption is not even mentioned in Geoffrey Whittington’s master work “Inflation Accounting – An introduction to the debate”.
The stable measuring unit assumption, as a Generally Accepted Accounting Practice, is, on the specific level, only applied in the valuing - by Chartered Accountants - of “non-monetary items which do not hold their value in terms of purchasing power.” Geoff Everingham´s words in the quote. Currently CAs specifically choose to value “non-monetary items which do not hold their value in terms of purchasing power” at historical cost when they apply the stable measuring unit assumption as part of the Historical Cost Accounting model.
Revoking the stable measuring unit assumption is not updating all non-monetary items at the CPI rate as Geoff Everingham thought I meant and as you blindly followed him since most of your opening statement in this thread is from his letter to the Financial Mail which you used as your sole reference about my work.
Everyone, including Geoff Everingham first thinks that I want to implement 1970 style “inflation accounting” in South Africa. That is completely untrue.
I want SA to abandon the stable measuring unit assumption; that is, I want SA to update constant real value non-monetary items never updated (e.g. retained earnings) or not fully updated in the SA economy over time - at the rate of inflation under non-hyperinflationary conditions and at the parallel rate if SA ever experiences hyperinflation.
I will be very surprised if Geoff Everingham had read my first book or any of the items available on the internet about my work. I think he simply thought I wanted to apply 1970 style “inflation accounting” - as you did too.
However, in email correspondence about the Financial Mail letters, Geoff Everingham agrees with me that inflation is part of the process that destroys the real value of constant items never or not fully updated in South Africa and that non-monetary items are sub-divided in two sub-categories.
He emailed me:
“I think the fundamental difference between us has to do with what we mean by destroying value. There is no question that inflation does this to all monetary items and to non-monetary items which do not hold their value in terms of purchasing power.”
Geoff Everingham thus agrees with me that there are two types of non-monetary items. Those that hold their value in terms of purchasing power and those that do not hold their value in terms of purchasing power.
Geoff Everingham also agrees with me that inflation is part of the process that destroys the real value of those non-monetary items that do not hold their value in terms of purchasing power.
I simply show, additionally, that it is actually the combination of inflation and the stable measuring unit assumption – a Generally Accepted Accounting Practice, as implemented by choice by Chartered Accountants – and not simply “inflation” - which destroys the real value of non-monetary items that do not hold their purchasing power over time – also called constant real value non-monetary items or constant items.
If we had only inflation in money and no accounting, then there would be no destruction of value in non-monetary items since inflation only destroys real value in non-monetary items that do not hold their purchasing power over time in combination with the stable measuring unit assumption; that is, in combination with a Generally Accepted Accounting Practice that is part of the Historical Cost Accounting model and that Chartered Accountants choose to implement since they are not required to use the HCA model by IASs, IFRSs, SA GAAPs or the SA Companies Act.
I do not say abandon all current accounting International Standards and SA GAAPs: I say simply abandon one assumption. I do not say abandon a fact. I say abandon an assumption: the stable measuring unit assumption.
CAs use the unit of measure in accounting to be the base money unit of the most relevant currency in SA, namely the Rand. CAs also assume the Rand is stable; that is, changes in its general purchasing power are not considered sufficiently important to require adjustments to the basic financial statements.
Abandoning the stable measuring unit assumption changes the HCA to the Real Value Accounting model.
Real Value Accounting is based on all current IFRSs, IASs, SA GAAPs and the SA Companies Act - excluding the stable measuring unit assumption, the definition of monetary items in IAS 21 and excluding the whole of IAS 29. IAS 29 is not required under Real Value Accounting when the stable measuring unit assumption is revoked.
CAs unknowingly / unintentionally / unwittingly destroy the real value of constant items never updated, e.g. retained earnings, or not fully updated over time in the SA economy at the inflation rate. This amounts to R57.983 billion in the case of those 169 JSE listed companies I have analyzed so far. I estimate that CAs unknowingly destroy a total of about R 200 billion each and every year in the SA real economy as a result of their application of the stable measuring unit assumption.
This destruction is an integral part of the HCA model. It is a Generally Accepted Accounting Practice under the current Historical Cost paradigm.
However, the stable measuring unit assumption is not required for the basic double entry accounting model. Real Value Accounting is also a double entry accounting model. The stable measuring unit assumption does not form part of the Real Value Accounting model.
Chartered Accountants´ unintentional destruction of the real value of constant items never or not fully updated is an indispensable part only of the HCA model. It is, fortunately, not a part of the basic double entry accounting model. It came about as a result of unavoidable historical circumstances, namely the lack of an index value to adjust constant items for inflation in the past.
This does not diminish the fact that CAs´ unwitting killing of the real economy is an integral part of generally accepted current economic activity in SA under the Historical Cost paradigm. Fortunately it is easy to stop CAs killing the real economy. Just stop the stable measuring unit assumption which is the next step in our fundamental model of accounting.
No-one stops CAs from abandoning the stable measuring unit assumption. Neither the SA Companies Act nor IASB Standards nor SA GAAPs require the HCA model.
This destruction by CAs is completely eliminated and is physically and mathematically impossible under the Real Value Accounting model which revokes the stable measuring unit assumption.
Geoff Everingham´s statement also implies that he disagrees with the IASB which only recognizes monetary and non-monetary items. To them all non-monetary items are the same. The stable measuring unit assumption allows them to do that. They have IASs and IFRSs to value non-monetary items with variable real values and they solve the problem of inflation by simply assuming there is no inflation in the valuing of constant items. They, like SA CAs, value them at historical cost and thus destroy their real value over time at the rate of inflation.
We can derive almost all of the basic theory of Real Value Accounting from that statement by Geoff Everingham that inflation destroys value in “non-monetary items which do not hold their value in terms of purchasing power”.
Then we can complete the basic theory of Real Value Accounting from your, SAICA´s – statement in the opening post in this thread: “Even then, the adjusted figures have little meaning, since by the time they see the light of day they are already out of touch with reality.”
Real Value Accounting is so much in line with what everybody already knows but no-one implements, that we can take Geoff Everingham´s statement and your statement and derive almost all of Real Value Accounting from those two statements.
What are non-monetary items?
Non-monetary items are all items that are not monetary items.
Non-monetary items are subdivided into:
1. Variable real value non-monetary items; and
2. Constant real value non-monetary items.
We already know that Geoff Everingham agrees that non-monetary items are subdivided in two categories.
What Geoff Everingham does not realize is that by agreeing that inflation destroys the real value of not only monetary items – as we all know – but, also “non-monetary items which do not hold their value in terms of purchasing power” implies that he agrees that the combination of inflation and the stable measuring unit assumption as implemented by Chartered Accountants as a GAAP under HCA destroys constant real value non-monetary items never or not fully updated.
How else does inflation destroy “non-monetary items which do not hold their value in terms of purchasing power”?
Inflation destroys the real value of money as a result of the very nature of money: we could have inflation in money even if we do not have any accounting. Neither the basic double entry accounting model nor the HCA model has anything to do with the causes of inflation - the destruction of the real value of money.
Geoff Everingham´s statement that inflation destroys the value of “non-monetary items which do not hold their value in terms of purchasing power” is only possible and inflation can only do that not because of the double entry accounting model per se, but because of the implementation of the stable measuring unit assumption as part of the HCA model.
Constant items only came about with the introduction of the double entry accounting model.
There is no destruction of value by inflation in variable real value non-monetary items.
Variable items in South Africa are valued at fair value or the lower of cost or net realizable value or recoverable value or market value or present value in terms of International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs) and South African Generally Accepted Accounting Practice (SA GAAP). “Listed companies use IFRS and the unlisted companies could use either IFRS or Statements of GAAP.” – as per the South African Institute of Chartered Accountants.
Variable items in SA are adequately valued in terms of International Standards and GAAP - at the balance sheet date. Originally all variable items were valued at historical cost.
The debate today is about whether the Historical Cost Accounting model creates and destroys value.
It does destroy value. It also creates value. Without the double entry accounting model there are no constant items – only variable items.
CAs create value by implementing the double entry accounting model. They put in motion the process that creates constant items.
CAs do not destroy value by implementing the double entry accounting model per se.
Cas unknowingly destroy value when they implement the stable measuring unit assumption in conjunction with the double entry accounting model, that is, when they implement the HCA model.
When CAs abandon the stable measuring unit assumption they will maintain the real value of all constant items in SA for an unlimited period of time. They will maintain hundreds of billions of Rand in constant item real value year in year out. They will be responsible for reducing the destruction of real value in constant items in the real economy to zero percent for an unlimited period of time. I estimate that value to be about R200 billion per annum.
CAs will be responsible for protecting the SA real economy from real value destruction in constant items never or not fully updated by the combination of inflation and the stable measuring unit assumption.
We will still have inflation in monetary items in the SA monetary economy, but we will have 0% destruction of real value in the real economy.
If CAs carry on with the stable measuring unit assumption they will carry on unknowingly destroying all constant items never updated (e.g. retained earnings in all SA companies) at the annual rate of inflation as they are doing at the moment - albeit unintentionally. Constant items not fully updated will be destroyed at a lower rate than the annual rate of inflation.
Friday, August 15, 2008
SAICA, revoking the stable measuring unit assumption has a lot of substance.
Copy of comment on the thread: "R57.984 billion real value destroyed by CAs in 169 JSE listed companies" started by SAICA on the SAICA Discussion Forum:
Submitted by: Nicolaas Smith
Date Submitted: 15 August 2008
[2] SAICA, your a priori judgement of my work is regretable. Revoking the stable measuring unit assumption has a lot of substance although you cannot see that yet. Some people already have:
(1) This is what Dr Cemal KÜÇÜKSÖZEN, Head of Accounting Standards Department, Capital Markets Board of Turkey had to say in 2005 about my first book:
"I examined your book and understood that Real Value Accounting is based on the continuous updating of non-monetary units in terms of the Consumer Price Index to today's real value.
Theoretically, I totally agree with you. But, as you know, there is a trend toward the acceptance of International Accounting Standards and International Financial Reporting Standards issued by the International Accounting Standards Board all over the world. For example, the International Organization of Securities Commissions (IOSCO) recommends harmonization of national accounting standards with IAS and IFRS. Also, the European Union introduced the requirement that from 2005 onwards, all listed companies have to prepare their consolidated accounts in accordance with IAS and IFRS adopted for application within the European Community. Considering international developments and as a candidate country for full membership, Turkey has issued a communiqué involving all IAS and IFRS and began application of them from the beginning of 2005 (As you know, we began application of IAS 29 in 2003).
In this regard, we can change over to real value accounting when there is a change in IAS/IFRS toward real value accounting or there is a trend toward real value accounting all over the world."
(2) This is what a Finweek editor had to say in May this year:
"I wish you all the best with your second book - please keep me on your mailing list so that I can get a copy when you publish!!
I hope you are successful in your endeavours. FYI, I am affiliated with UCT and so am interested when new work is being undertaken in the field.
GOOD LUCK,
Steven"
(3) Geoff Everingham, as you know, agrees with me that inflation destroys real value in non-monetary items in South Africa. This is what he stated:
"“I think the fundamental difference between us has to do with what we mean by destroying value.There is no question that inflation does this to all monetary items and to non-monetary items which do not hold their value in terms of purchasing power.”
(4) 808 copies of my first book have already been downloaded from the Social Science Research Network at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=946775
(5) My article "Financial Statements, Inflation & The Audit Report was published in the Sept 2007 edition of your magazine Accountancy SA after it was peer reviewed twice by Chartered Accountants at SAICA, in which I stated that:
""The combination of the Historical Cost Accounting model and low inflation is thus indirectly responsible for the destruction of the real value of Retained Income equal to the annual average value of Retained Income times the average annual rate of inflation."
and
"Everybody suddenly then agrees to destroy hundreds of billions of Dollars in real value in all companies´ Retained Income balances all around the world.
To you, however, my work "contains little by way of substance."
My response to you is the following: your statement that "inflation-adjusted accounts in a low inflation environment insult the user" does not have little by way of substance - it has no substance whatsoever.
Nicolaas Smith
http://realvalueaccounting.blogspot.com/
SAICA, I refuse to turn the other cheek
Copy of comment on the thread: "R57.984 billion real value destroyed by CAs in 169 JSE listed companies" started by SAICA on the SAICA Discussion Forum:
Submitted by: Nicolaas Smith
Date Submitted: 14 August 2008
[2] SAICA, I have taken full note that my work "contains little by way of substance" to you. You are actually kinder than Geoff Everingham. To him nothing I state has any substance and he stated that in his first public statement about my work. That was a pity. I do not hold it against him. I know I state things in a different way. He will still come to agree with everything I state. It is all so logical and not much is actually completely new.
That you state that my work contains little by way of substance will not stop me from working for the revoking of the stable measuring unit assumption in South Africa.
Brazil basically did that during 30 years from 1964 to 1994 when they updated non-monetary items on a daily basis during hyperinflation. I only discovered what they did after I arrived at the same conclusions, but via a different route that started in Angola´s hyperinflationary economy in 1995.
So, SAICA, if you disagree with me, you disagree with that brilliant Brazilain team, led by Dr Gustavo Franco, that finally implemented the Real plan in Brazil. You cannot prove them wrong. What they did is not theory but brilliantly successful reality.
All I am doing is saying: do what Brazil did for 30 years under hyperinflation. Do it under low inflaitonary conditions and (1) you make the destruction of the real economy impossible under any level of inflation and (2) you maintain hundreds of billions of Rand in the real economy for an unlimited period of time. There are more very real advantages that need more explanation than is possible in this thread.
The day South Africa revokes the stable measuring unit assumption, that day will be the first day that it will be impossible for high or hyperinflation to destroy the SA real economy like it did in Zimbabwe and in all past hyperinflationary economies. That did not happen in Brazil for exactly the reasons I want SA to revoke the stable measuring unit assumption.
If SA ever has a governor of the SARB like Gideon Gono in Zimbabwe, then SA may still have monetary hyperinflation.
But as soon as the stable measuring unit assumption is revoked and all constant items are updated at the inflation rate under low inflation and at the parallel rate under hyperinflation, it will be impossible for any level of inflation to destroy any part of the SA real economy in any way.
SAICA, you will still come to understand these concepts. I know some of them are new, or new in the way I present them.
In fact, very little of what I propose is actually completely new. I know which parts are. There are not many, believe me. Actually only two, I think.
I am very sad that I have to state some of the things I state on this thread about SAICA.
SAICA should be the main institution in South Africa behind the move to have the stable measuring unit revoked.
Unfortunately I could not turn the other cheek when you stated that "inflation-adjusted accounts in a low inflation environment insult the user."
Revoking the stable measuring unit assumption is not about adjusting all accounts for inflation as you and Geoff Everingham and most probably everyone else think. Only constant real value non-monetary items never or not fully updated are.
I know I present these concepts in a new way. When you study them carefully you will find that you agree.
Nicolaas Smith
http://realvalueaccounting.blogspot.com/
Geoff Everingham admits that inflation destroys the real value of non-monetary items in South Africa
Copy of comment on the thread: "R57.984 billion real value destroyed by CAs in 169 JSE listed companies" started by SAICA on the SAICA Discussion Forum:
Submitted by: Nicolaas Smith
Date Submitted: 13 August 2008
[3] Oh, I forgot:
SAICA states: "Ultimately, inflation-adjusted accounts in a low inflation environment insult the user by implying that he lacks the sense to arrive at his own conclusions; by suggesting that he needs his hand held when he is instinctively aware of the route he should take to reach his goal."
What you say is I am now insulting those 169 CAs and those 169 boards of directors for advising them to inflation-adjust all constant real value non-monetary items, e.g. Retained Earnings.
I disagree.
I advise the whole of South Africa to do that. I know and all CAs know that is not an insult to SA.
Nicolaas Smith
http://realvalueaccounting.blogspot.com/
-------------------------------------------------------------------------------------
Submitted by: Nicolaas Smith
Date Submitted: 13 August 2008
[4]
What the destruction of the R57.984 bllion in the real value of the Retained Earnings balances of the 169 JSE listed companies that I have analyzed so far concerns:
This is what Geoff Everingham stated in one of his email replies to me:
“I think the fundamental difference between us has to do with what we mean by destroying value.There is no question that inflation does this to all monetary items and to non-monetary items which do not hold their value in terms of purchasing power.”
So Geoff Everingham agrees that value is destroyed in non-monetary items which do not hold their value in terms of purchasing power.
Retained Earnings do not hold their value in terms of purchasing power. All Chartered Accountants know that. I am sure SAICA knows that too.
12.2% of the real value of any Rand value held in a zero deposit bank account for the next year will be destroyed by inflation – all else being equal. It is not possible to update cash.
12.2% of the real value of the Retained Earnings remaining on the balance sheets of all SA companies for the next year will be destroyed by the combination of inflation and the stable measuring unit assumption that SA Chartered Accountants choose to implement – all else being equal.
That value to be unknowingly destroyed over the next 12 months in those 169 companies as decided by those 169 CAs in those companies amount to R57.983 billion.
It need not be like that.
When those 169 companies´ boards of directors instruct those 169 CAs today, after being advised by those 169 CAs in those companies, to abandon the stable measuring unit assumption as far as the accounting of constant real value non-monetary items are concerned since it is not required by IFRSs, IASs, SA GAAPs or the SA Companies Act, then R57. 983 billion will remain in the SA economy instead of being destroyed. This is only for those 169 companies. The R57.983 billion is a conservatively calculated value.
Nicolaas Smith
SAICA considers inflation-adjusted salary accounts an "insult to the user"
Below is a copy of SAICA´s statement on their Discussion Forum on their old site. Their new site does not have a Discussion Forum open to the general public with unmoderated entry at this moment. The old Discussion Forum with all my comments and their two official responses have been removed.(11-04-2009)
Click on the images below.
Copy of comment on the thread: "R57.984 billion real value destroyed by CAs in 169 JSE listed companies" on the SAICA Discussion Forum on their old site not available anymore as SAICA has not replaced the Discussion Forum available to the public on their new site.
Submitted by: Nicolaas Smith
Date Submitted: 13 August 2008
[5] SAICA you state: "inflation-adjusted accounts in a low inflation environment insult the user."
Most salaries and wages and many other constant items - but not retained earnings, issued share capital, trade debtors, trade creditors, etc - are inflation adjusted in South Africa.
SAICA, no-one in South Africa will be happy to hear that you regard that as an insult to them.
You are entitled to your opinion, of course.
SAICA, I advise you to inform yourself about Real Value Accounting, which is not "a form of inflation accounting (to) be adopted by adjusting figures using, for example, the CPI.
Real Value Accounting is based on all IFRSs, IASs, SA GAAPs and the SA Companies Act - excluding the stable measuring unit assumption, the definition of monetary items in IAS 21 and excluding the whole of IAS 29. IAS 29 is not required under Real Value Accounting when the stable measuring unit assumption is revoked.
Nicolaas Smith
http://realvalueaccounting.blogspot.com/
Tuesday, August 12, 2008
SAICA states: "inflation-adjusted accounts in a low inflation environment insult the user"
Copy of comment on the thread: "R57.984 billion real value destroyed by CAs in 169 JSE listed companies" started by SAICA on the SAICA Discussion Forum:
Submitted by: Nicolaas Smith
Date Submitted: 13 August 2008
[2] SAICA rejects adjusting constant item accounts in a low inflation environment contrary to the findings of a peer reviewed article in a leading South African Accountancy Magazine.
See: Accountancy SA
Despite the fact that Accountancy SA published the article: "Financial Statements, Inflation & The Audit Report" in Sept. 2007, SAICA now claims that "inflation-adjusted accounts in a low inflation environment insult the user."
The article in the Sept 2007 issue of Accountancy SA states:
"The combination of the Historical Cost Accounting model and low inflation is thus indirectly responsible for the destruction of the real value of Retained Income equal to the annual average value of Retained Income times the average annual rate of inflation."
and
"Everybody suddenly then agrees to destroy hundreds of billions of Dollars in real value in all companies´ Retained Income balances all around the world."
Real Value Accounting revokes the stable measuring unit assumption and updates all constant items at the inflation rate in low inflation economies. This stops the destruction of real value in constant items never or not fully updated by Chartered Accountants implementing the stable measuring unit assumption as part of the Historical Cost Accounting model.
South Africa has to stop Chartered Accountants killing the real economy with their stable measuring unit assumption.
However:
SAICA states: "inflation-adjusted accounts in a low inflation environment insult the user"
and
"Mr Smith's constant repetition of the same theme; one that contains little by way of substance."
SAICA´s statement that "inflation-adjusted accounts in a low inflation environment insult the user" is devoid of any substance at all.
Nicolaas Smith
http://realvalueaccounting.blogspot.com/
SAICA: "Mr Smith's constant repetition contains little by way of substance."
Copy of a thread started by SAICA on the SAICA Discussion Forum:
R57.984 billion real value destroyed by CAs in 169 JSE listed companies
Submitted by: SAICA
Date Submitted: 12 August 2008
[1] SAICA members are no doubt familiar with Nicolaas Smith's contention that accountants are responsible for destroying real value in the real economy with their assumption that the rand is stable; that accountants should adopt inflation accounting if they are not to destroy value.
It's a familiarity bred out of Mr Smith's constant repetition of the same theme; one that contains little by way of substance.
As the University of Cape Town's Prof Geoff Everingham so eloquently responds: "This confuses the reporting process with the processes which create wealth; rather like blaming the scorekeeper when the batsmen fail to score runs."
Financial reporting simply reports on what took place. It is not part of the process of creating wealth, but it doesn't destroy it either, except insofar as there are costs attached to the reporting process, though this is largely offset by the benefits conferred on users, among them investors.
Smith argues that such alleged value destruction would be remedied if the assumption of a stable measuring unit were abandoned for reporting purposes; that, instead, a form of inflation accounting be adopted by adjusting figures using, for example, the CPI.
Yes, this does have conceptual appeal and was experimented with in the UK and US in the 1970s, when inflation was high. Yet the markets brushed aside the inflation-adjusted figures because:
• The capital markets are acutely aware of the extent of inflation and are perfectly capable of allowing for this in determining the value of shares; and
• Businesses are affected by the specific price changes of the products with which they are dealing; changes that may bear little relationship to a general price index like the CPI.
It therefore made little practical sense to introduce CPI-based adjustments. Indeed, when the CPI-based approach was included in supplementary accounts, business generally objected on the grounds that the adjusted numbers did not reflect the impact of specific inflation.
Eventually, with inflation abating in the UK and US, and accountants engaging in increasingly technical dead-end debates, the use of CPI-adjusted numbers was abandoned.
Self-evidently, inflation adjustments that apply accounting standard IAS29 are essential in hyperinflationary environments, in which historic numbers are meaningless. Even then, the adjusted figures have little meaning, since by the time they see the light of day they are already out of touch with reality.
Ultimately, inflation-adjusted accounts in a low inflation environment insult the user by implying that he lacks the sense to arrive at his own conclusions; by suggesting that he needs his hand held when he is instinctively aware of the route he should take to reach his goal.
Mr Smith has beaten his drum long and often. It's been noted. The time has come to move on; to beat a different drum with a different theme.
Censored by SAICA (2)
Copy of comment on the SAICA Discussion Forum
Submitted by: Nicolaas Smith
Date Submitted: 6 August 2008
[1] I wish to state that I am shocked that Saica censored this post. I never thought Saica could ever do a thing like that.
SA Chartered Accountants are killing the SA real economy with their stable measuring unit assumption which is a Generally Accepted Accounting Practice.
No matter how many times Saica deletes this posts, you will not suppress the truth.
Why do you not look into the matter, instead of deleting it from your website? You only harm your good image.
You will not make it go away.
In the end the stable measuring unit assumption will be revoked and everyone in SA will gain from it. The sooner Saica accepts that, the better.
Signed: Nicolaas Smith
http://realvalueaccounting.blogspot.com/
Censored by SAICA (1)
Copy of comment on the SAICA Discussion Forum
Submitted by: Nicolaas Smith
Date Submitted: 5 August 2008
[2] 5th August 2008: I posted the following here yesterday. It seems to have been deleted. I think that is a mistake and I am surprised that it was deleted by Saica. Let´s see if this wil be deleted again. This time I am keeping a copy of this post:
R57.984 billion real value destroyed by CAs in 169 JSE listed companies
Updated: June 2008
Annual amount unknowingly being destroyed by South African Chartered Accountants in the real value of Retained Earnings in 169 companies listed on the Johannesburg Stock Exchange as a result of their implementation of the stable measuring unit assumption which is a Generally Accepted Accounting Practice:
R57.984 billion
This is a conservative calculation of the actual real value unintentionally destroyed by CAs during the 12 months to the end of June 2008 in the 169 JSE listed companies analyzed to date.
Current rate at which SA Chartered Accountants are unwittingly destroying the real value of all retained earnings balances in South African companies: 12.2% per annum.
SA Chartered Accountants are unknowingly killing the real economy in a massive way.
Next update: When the July 2008 CPI figure is released by Stats SA.
[Real Value date: June 2008 CPI 160.4 Annual monetary and non-monetary real value destruction rate: 12.2%. The non-monetary destruction rate applies to constant non-monetary items never updated, e.g. retained earnings. The above Rand value will be updated monthly in terms of future changes in the CPI.]
http://realvalueaccounting.blogspot.com/
