Thursday, 25 November 2010

Four accounting models authorized under IFRS

A: Financial capital maintenance in nominal monetary units during low inflation and deflation: traditional Historical Cost Accounting (see the Framework, Par 104 (a))

B: Financial capital maintenance in units of constant purchasing power; i.e. Constant ITEM Purchasing Power Accounting (CIPPA) under which ONLY constant real value non-monetary items (NOT variable items) are inflation-adjusted during low inflation and deflation. This is NOT Constant Purchasing Power Accounting which is an inflation-accounting model required ONLY during hyperinflation under which ALL non-monetary items – BOTH variable and constant items – are inflation-adjusted. (see the Framework, Par 104 (a)). This accounting model is unique to IFRS. It is not authorized under US GAAP.

IFRS also specifically require

C: Current Cost Accounting when an entity selects physical capital maintenance in terms of the Framework, Par 102 and 104 (b).

IAS 29 Financial Reporting in Hyperinflationary Economies requires

D: Constant Purchasing Power Accounting, i.e. inflation-accounting under which all non-monetary items – both variable and constant items – are inflation-adjusted ONLY during hyperinflation (different from the above Constant ITEM Purchasing Power Accounting authorized in Par 104 (a) during LOW inflation and deflation under which ONLY constant items – NOT variable items – are inflation-adjusted during LOW inflation and deflation).
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