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Thursday, 15 December 2011

Strengths of the CIPPA approach compared to IAS 29 during hyperinflation

Strengths of the CIPPA approach compared to IAS 29 during hyperinflation

The competition is IAS 29.

CIPPA during hyperinflation is financial capital maintenance in units of constant purchasing power by means of daily measurement of all non-monetary items in terms of a Brazilian style daily index or the daily US Dollar parallel rate versus simple restatement of HC or CC financial reports in terms of the period end monthly CPI as required by IAS 29.

Strengths of the CIPPA approach

1.    It automatically maintains the constant purchasing power of capital constant forever in all entities that at least break even in real value during hyperinflation – ceteris paribus: more or less what Brazil did during 30 years of daily indexing of all non-monetary items from 1964 to 1994 (completely ignored by the IASB).

2.    It can right now be implemented by any individual company during hyperinflation. However, it is not yet authorized in IFRS during hyperinflation. IFRS require the implementation of IAS 29 during hyperinflation. Although authorized in IFRS in the original Framework (1989) Par 104 (a), IAS 8.11 states that a specific standard takes precedence over the Framework.

3.    It can be used to eliminate the effect of hyperinflation from the entire money supply - zero inflation - (excluding from actual bank notes and coins which generally make up about 7% of the money supply) only in the case of complete coordination with all money and other monetary items inflation-adjusted daily in terms of a Daily Index or daily US Dollar parallel rate during hyperinflation.

Strengths of IAS 29

No strengths.


Nicolaas Smith

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