There are three economic items in the economy:
1. Monetary items
2. Variable items
3. Constant items
1. Monetary Items
Monetary items are the easiest to value. Accountants do not have to do any calculations or follow any complicated rules in IFRS. They simply state the original nominal values during low inflation and during hyperinflation. That´s it.
Inflation destroys the real value of money and all other monetary items. Inflation keeps all monetary real values current at today´s rate. Very simple.
No-one can update any nominal monetary value during the current financial year.
So, it is the easiest thing in the world for accounants to value monetary items. They are automatically valued by inflation. They just state them at their original nominal values.
So, it is a fact: Accountants VALUE monetary items.
2. Variable Items
Accountants value variable items in terms of International Financial Reporting Standards at, for example, market value, fair value, recoverable value, present value and net realizable value during low inflation.
During hyperinflation, accountants have to value all variable items in units of constant purchasing power by inflation-adjusting them by means of the CPI. This is a requirement of the IASB in IAS 29 Financial Reporting in Hyperinflationary Economies.
No problems here either. Well, fair value mark-to-market procedures still have some way to go. But, the accounting authorities are working very hard to get this sorted out as soon as possible.
So, it is a fact: Accountants VALUE all variable items.
3. Constant items
Constant items are divided in two sub-groups:
a) Income statement items
b) Balance sheet constant items
Income statement items
Accountants value some (not all) income statement constant items, eg. salaries, wages, rents, etc in units of constant purchasing power during low inflation and thus maintain their real values constant - ceteris paribus.
The income statement items that are not inflation-adjusted during low inflation, accounants value at historical cost implementing the stable measuring unit assumption during low inflation.
During hyperinflation IAS 29 requires accountants to inflation-adjust not just some, but, all income statement items in units of constant purchasing power by means of the CPI. They thus maintain their real values constant - ceteris paribus.
So, it is a fact: Accountants VALUE income statement items either in units of constant purchasing power or at historical cost during low inflation. During hyperinflation all income statement items are VALUED in units of constant purchasing power.
Balance sheet constant items
Accountants have to value all balance sheet constant items in units of constant purchasing power during hyperinflation. Accountant thus maintain their real values constant during hyperinflation - ceteris paribus.
Accountants value all balance sheet constant items, eg. issued share capital, retained profits, all other items in shareholders´ equity, etc at historical cost during low inflation thus unknowingly and unintentionally destroying their real values at a rate equal to the inflation rate because these items are constant real value non-monetary items. Accountants thus value these items the same as simple old cash - in nominal monetary values at historical cost implementing their very destructive stable measuring unit assumption and unknowingly destroy their real values at a rate equal to the rate of inflation to the tune of about R200 billion per year in the SA real economy for an unlimited period of time as long as they carry on implementing the very destructive stable measuring unit assumption during indefinite inflation.
So, it is a fact: accountants VALUE all income statement and all balance sheet constant items.
Summary: SA accountants VALUE all items they account in a business.
Kindest regards,
Nicolaas Smith
PS When SA accountants choose to value all constant items during low inflation in units of constant purchasing power as they have been authorized by the IASB 20 years ago in the Framework, Par. 104 (a), they will boost the SA real economy by about R200 billion per annum forever - ceteris paribus
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