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."
The concept of a constant real value non-monetary item is derived in IFRS
The concept of a constant real value non-monetary item
is derived in IFRS
The original Framework
(1989), Par. 104 (a) [now the Conceptual Framework (2010), Par. 4.59 (a)]
states: ‘Financial capital maintenance can be measured in either nominal
monetary units or units of constant purchasing
power.’ When financial
capital maintenance is measured in units of constant purchasing power it means, in principle, that certain
economic items have constant real
values over time.
Everybody will agree
that this certainly does not refer to
monetary items. Thus, certain non–monetary
items are constant real value
non–monetary items, e.g. pensions, salaries, wages, rentals, all other income statement items, issued share
capital, share premium accounts, share discount accounts, capital reserves, all
other items in shareholders´ equity, trade debtors, trade creditors, dividends
payable, dividends receivable, deferred tax assets, deferred tax liabilities,
all taxes payable, all taxes receivable, all other non-monetary payables, all
other non-monetary receivables, provisions, etc.
On the other hand: non–monetary
items which are not constant real
value non–monetary items are thus variable
real value non–monetary items valued in terms of IFRS (excluding the stable
measuring unit assumption and the two definitions of monetary items which need
to be improved), e.g. property, plant, equipment, inventory, shares, foreign
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.