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Wednesday, 24 June 2009

Changing the way a company does its accounts does change the value of the company for the better

"ABSA joins chorus of doom" on today´s Fin24.com states that ABSA´s operating performance had been knocked by a REDUCTION IN THE VALUE of investment portfolios"

R3.326 Billion of the real value of ABSA´s Retained Earnings was not just reduced during their 2008 financial year but actually unknowingly DESTROYED by ABSA´s accountants implementing the stable measuring unit assumption as an accounting policy chosen by their Board of Directors. They are doing the same this year. Measurement in units of constant purchasing power is compliant with IFRS.

R3.326 Billion is also, more or less, the amount that ABSA´s accountants will unknowingly destroy in the real value of the bank´s Retained Earnings during their current financial year as a result of their implementation of the stable measuring unit assumption because the ABSA Board of Directors selected financial capital maintenance in nominal monetary units instead of in units of constant purchasing power in terms of the IASB´s Framework, Par. 104 (a) which states that "Financial capital maintenance can be measured in either nominal monetary units or in units of constant purchasing power."

Both bases are compliant with IFRS since the Framework applies (see IAS 8.11). There is not one specific IFRS relating to the valuing of Retained Earnings.

R3.326 Billion is the estimated amount that ABSA´s accountants will maintain in the real value of the banks Retained Earnings during this finacial year and every year there after - ceteris paribus - if ABSA´s Board of Directors decide today to reject the stable measuring unit assumption and to maintain the banks financial capital in real value maintaining units of constant purchasing power - which is compliant with IFRS - instead of in real value destroying nominal monetary units - which is also compliant with IFRS, but, results in their accountants unknowingly destroying the real value of their Retained Earnings as described above.

I think Maria Ramos should perhaps have a look at this.

R3.326 Billion is 4.5% of ABSA´s current market value.

Changing the way a company does its accounts does change the value of the company for the better.