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Tuesday, 1 December 2009

Accountants mistakenly blames inflation

What accountants and accounting lecturers at universities do not understand is that accountants unknowingly destroy massive amounts of real value in  companies doing normal accounting during low inflation. This unknowing and unintentional destruction amounts to about R200 billion per annum in the existing real values of existing constant items in  companies. It is existing real value that is being destroyed. It is not a matter of making more money to update capital.

The IASB authorized them 20 years ago to change that and to stop accountants unknowingly destroying value, but, because they mistakenly think it is inflation doing the destroying, they do nothing about it and say it is up to Gill Marcus and her team at the South African Reserve Bank to bring down inflation.

The crux of the matter is their blind belief that it is inflation doing the destroying and not accountants with normal accounting. They simply cannot contemplate even considering the possibility that measuring financial capital maintenance in units of constant purchasing power during low inflation as the IASB authorized them 20 years ago in the Framework, Par. 104 (a), which states

"Financial capital maintenance can be measured in nominal monetary units or in units of constant purchasing power"

would stop accountants from this unknowing and unintentional destruction during low inflation while they all accept it as absolutely essential during hyperinflation as it is required in IAS 29 Financial Reporting in Hyperinflationary Economies.



It is clear they mistakenly think accountants have absolutely nothing to do with it. They are completely wrong.

Summary

Accountants admit that "inflation influences reported results" doing Historical Cost Accounting during low inflation. They blame inflation resulting from the government´s and the central bank´s economic policy. The Institute apparently does not know that the stable measuring unit assumption is rejected outright in IAS 29 and as an option in the Framework, Par. 104 (a). They refuse to reject the stable measuring unit assumption under any circumstance. They totally disagree that accountants destroy value in any way.

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