IFRS and US GAAP authorised CMUCPP 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) in terms of a Daily CPI in entities that at least break even in real value during low and high inflation, hyperinflation and deflation - ceteris paribus. European Accounting Assoc: "Capital maintenance is a competing objective of financial reporting."
non-monetary items in variable and constant items which makes CIPPA acceptable
at all levels of inflation and deflation.
recognizes that it is the stable measuring unit assumption doing the damage and
not inflation. Brazil (from 1964 to 1994) and Chile (from 1967 to 2008)
implemented financial capital maintenance in units of constant purchasing power
and then went back to HCA because of a lack of understanding that it is not
inflation that is causing the erosion of real value in constant items, but, in
fact, the stable measuring unit assumption.
implemented at all levels of inflation and deflation – not only during
hyperinflation like indexation.
Strengths of indexation compared to
1.Indexation is generally accepted during hyperinflation.
2.It is generally accepted that
there are only two basic items in the economy, namely, monetary and
non-monetary items. Indexation is similar to CIPPA only
during hyperinflation excluding (a) the split of non-monetary items in variable
and constant items and (b) the understanding of the effect of the stable
measuring unit assumption.
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