IFRS and US GAAP authorised CMUCPP automatically maintains the constant purchasing power of constant real value non-monetary items (e.g. capital, all items in shareholders´ equity, provisions, salaries, wages, pensions, taxes, trade debtors/creditors, etc) only when updated in terms of the Daily CPI during low and high inflation, hyperinflation and deflation - ceteris paribus. European Accounting Association: "Capital maintenance is a competing objective of financial reporting."
The constant purchasing power of shareholders´ equity is equal to the real value of net assets fairly valued.
The fair value of fixed assets higher or lower than simply updating their nominal Historical Cost is reflected after revaluation in the revaluation reserve account in equity under financial capital maintenance in units of constant purchasing power during inflation, deflation and hyperinflation as originally authorized in International Financial Reporting Standards in the Framework for the Preparation and Presentation of Financial Statements (1989), Par. 104 (a) which states:
Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.
The revaluation reserve´s constant real non–monetary value is then automatically maintained constant with financial capital maintenance in units of constant purchasing power.
Under Constant Item Purchasing Power Accounting – CIPPA
Under CIPPA the existing constant real non–monetary value of equity is automatically maintained constant forever in terms of a Daily Index in all entities that at least break even during inflation and deflation – ceteris paribus – whether these entities own any revaluable fixed assets or not. CIPPA is not an inflation accounting model. Inflation accounting is only implemented during very high and hyperinflation. CIPPA is a basic accounting alternative to Historical Cost Accounting only implemented during low inflation and deflation.
Under Constant Purchasing Power Accounting – CPPA
Only capital maintenance in units of constant purchasing power in terms of the daily US Dollar or other hard currency parallel rate or a Brazilian–style daily index under CPPA automatically maintains the existing constant real value of shareholders´ equity constant for an indefinite period of time in all entities that at least break even during hyperinflation – all else being equal – whether these entities own any revaluable fixed assets or not. CPPA is an inflation accounting model where under all non–monetary items are valued in terms of the daily US Dollar or other hard currency parallel rate or a daily Brazilian-style index rate during hyperinflation. Variable items are updated daily and constant items are measured in units of constant purchasing power daily because there is no stable measuring unit assumption under CIPPA and CPPA.
Copyright (c) 2005-2011 Nicolaas J Smith. All rights reserved. No reproduction without permission.