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."
is the first accounting model implementing IFRS
authorized financial capital maintenance in units of constant purchasing power
at all levels of inflation and deflation.
split of non-monetary items in the two new accounting concepts and terms: (i) Variable real value non-monetary items and
Constant real value non-monetary items
meaning that there are not just the generally accepted two - monetary and
non-monetary - basic economic items, but, three: monetary, variable and
constant items resulting in the new terms
4. Variable item economy and
5. Constant item economy and giving origin
to the two new accounting entries never before made:
6. Net Constant Item Loss and
7. Net Constant Item Gain.
8. CIPPA introduces the fact that IFRS authorize not only the generally accepted
two capital and capital maintenance concepts, namely, (A) physical and (B)
financial capital and capital maintenance, but three (which is a big revelation
to the accounting profession), namely (a) physical capital and capital
maintenance, (b) financial capital and capital maintenance measured in nominal
monetary units (traditional HCA) and (c) financial capital and capital
maintenance measured in units of constant purchasing power at all levels of
inflation and deflation (CIPPA) since it was authorized in the original
Framework (1989), Par 104 (a).
implements the very erosive stable measuring unit assumption. CIPPA rejects the
stable measuring unit assumption at all levels of inflation and deflation. The
two accounting models implement two fundamentally different capital and capital
maintenance concepts – both authorized in IFRS in the same sentence.
9. Inflation illusion is introduced under CIPPA, namely the mistaken belief that inflation causes the erosion of
companies´ capital and profits as taught to all and believed by most
accountants and specifically stated in US Financial Accounting Standards by the
US Financial Accounting Standards Board when, it is in fact caused, not by
inflation, but, by the very erosive stable measuring unit assumption.
Inflation has no effect on the real value of
non-monetary items as specifically stated by two Turkish academics as follows: “Purchasing power of non monetary items does
not change in spite of variation in national currency value,” and easily
deduced from Milton Friedman´s now famous statement that inflation is always and everywhere a monetary phenomenon.
10. CIPPA details the fact that the implementation of the HCA model, more
specifically the stable measuring unit assumption (and not inflation), causes
the unknowing, unintended and unnecessary erosion of that portion of shareholders´
equity never maintained constant by sufficient revaluable fixed assets
(revalued or not) during low inflation amounting to hundreds of billions of US
Dollars eroded in constant item real value per
annum in the world´s constant item economy.
11. CIPPA automatically maintains the constant real value of
shareholders´ equity constant for an indefinite period of time in all entities
that at least break even in real value during low inflation – ceteris paribus – whether they own any
revaluable fixed assets or not and that this would maintain hundreds of
billions of US Dollars in constant item real value per annum in the world´s constant item economy when implemented
worldwide at the current levels of inflation.
Copyright (c) 2005-2011 Nicolaas J Smith. All rights reserved. No reproduction without permission.