Pages

Saturday, 24 September 2011

CIPPA: What, how and why.

CIPPA: What, how and why.

What to do?

Stop the stable measuring unit assumption.

How?

Stop the Historical Cost Accounting model and implement financial capital maintenance in units of constant purchasing power as authorized in IFRS in the original Framework (1989), Par 104 (a) [Conceptual Framework (2010), Par 4.59 (a)] which states:

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

1. Value constant real value non-monetary items in units of constant purchasing power in terms of the Daily CPI as authorized in IFRs. The Net Constant Item Loss or Gain is calculated and accounted for constant items not measured in units of constant purchasing power.

2. Value variable real value non-monetary items in terms of IFRS and update them in terms of the Daily CPI. Impairment and revaluation gains and losses are treated in terms of IFRS.

3. Inflation-adjust monetary items in terms of the Daily CPI. The Net Monetary Loss or Gain is calculated and accounted for monetary items not inflation-adjusted.

Why?

The stable measuring unit assumption (Historical Cost Accounting) erodes hundreds of billions of US Dollars per annum in the real value of constant items never maintained constant in the world´s constant item economy. This is the result of the global implementation of financial capital maintenance in nominal monetary units during inflation which is a very popular accounting fallacy not yet extinct. It is impossible to maintain the real value of capital in nominal monetary units per se during inflation.

CIPPA automatically stops this erosion of constant item real value forever. Financial capital maintenance in units of constant purchasing power as authorized in IFRS automatically maintains the constant real value of capital constant forever in all entities that at least break even in real value during inflation and deflation - ceteris paribus- whether they own any revaluable fixed assets or not.

Nicolaas Smith

Copyright (c) 2005-2011 Nicolaas J Smith. All rights reserved. No reproduction without permission.