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Tuesday, 20 December 2011

HCA should not be implemented during high inflation and hyperinflation

HCA should not be implemented during high inflation and hyperinflation

IAS 29 states: The financial statements of an entity whose functional currency is the currency of a hyperinflationary economy, whether they are based on a historical cost approach or a current cost approach shall be stated in terms of the measuring unit current at the end of the reporting period. IAS 29, Par 8.

PricewaterhouseCoopers states the following regarding the use of the HCA model during hyperinflation:

Inflation–adjusted financial statements are an extension to, not a departure from, historic cost accounting.

Financial Reporting in Hyperinflationary Economies – Understanding IAS 29, PricewaterhouseCoopers, May 2006, p 5.   

It is clear from the above that IFRS approve and PricewaterhouseCoopers support the implementation of the Historical Cost Accounting model which includes the very erosive stable measuring unit assumption during high inflation and hyperinflation. That is a fundamental mistake during high inflation and hyperinflation. HCA should not be implemented during high inflation and hyperinflation

Nicolaas Smith

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