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Sunday, 25 July 2010

Financial Standards are similar to universal units of measure: they need a fundamental constant.

Comment to IFRS in Perspective blog on AccountingWeb.com

Mr Pounder,

Financial standards are really the same as universal units of measure (inch, pound, gram, meter, etc.) because accountants value all items in financial statements. As your Mr Mosso (ex FASB) stated: The balance sheet is a measurement instrument.

No one in any country in the world disagrees that monetary items have to be valued at their original nominal historical cost monetary values during the current financial period. You will not find one person in the world who will disagree with that. Money (the functional currency) is money and it cannot (currently) be updated of inflation- or deflation-adjusted - during the current financial period.

You will find many people and many countries disagreeing about the definition of monetary items. We all have to agree to one single definition of monetary items too.

That goes for all financial standards too.

There are no sovereignity issues with the definition of an inch, a pound, a gram, etc. Not all countries apply the metric system, but, there is a fixed fundamental relationship between different measures for the same concept. That is what should be the case with financial standards too.

In the end any economic item stated in financial statements have one and only one real value.

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith