Thursday, 10 June 2010

It is not inflation doing the destroying

It is not inflation doing the destroying as the IASB, the FASB and SA accountants mistakenly believe.

It is SA accountants´ free choice of the very destructive stable measuring unit assumption during low inflation as it forms part of financial capital maintenance in nominal monetary units – the Historical Cost Accounting model – as authorized in IFRS in the Framework, Par 104 (a) twenty one years ago.

SA accountants would knowingly maintain the real values of all constant real value non-monetary items constant (amounting to about R167 billion per year while inflation stays at about 4.8% per annum) in all companies that at least break even forever – all else being equal - no matter what the level of inflation or deflation when they reject the stable measuring unit assumption and implement financial capital maintenance in units of constant purchasing power during low inflation and deflation.

This would be done without requiring extra money or extra retained profits simply to maintain the existing constant real value of existing constant real value non-monetary items constant.

Copyright © 2010 Nicolaas J Smith