Updated on 18-04-2013
But, IAS 29, although it requires Capital Maintenance in Units of Constant Purchasing Power during hyperinflation, unfortunately does not result in complete (or 100%) capital maintenance in units of constant purchasing power because it is generally accepted (2013) to use the monthly published CPI instead of the generally available Daily CPI (most countries in the world issue government capital inflation-indexed bonds which are priced on a daily basis using country specific Daily CPI´s based on the monthly published CPI). Current year profits are thus eroded/destroyed because of the use of the monthly CPI instead of the generally available Daily CPI when IAS 29 is implemented using the monthly CPI. A month can have 28 to 31 different daily price levels, or even more from about 3000 per cent per annum inflation and above. It is mistakenly generally accepted under current implementation practices of IAS 29, to use the CPI at the month end instead of 28 to 31 different generally available Daily CPI values to maintain current year profit. Current year profit is thus not fully maintained in this manner. A portion is eroded/destroyed using IAS 29 in terms of a monthly published CPI during hyperinflation. It is also a well-proven and undeniable fact that the implemetation of IAS 29 can also have absolutely not positive effect during hyperinflation. This was undeniably proven during hyperinflation in Zimbabwe. Zimbabwe´s economy imploded on 20 November 2008 after 8 years of full implementation of IAS 29. Thus, beware of IAS 29 in terms of the monthly CPI during hyperinflation.
Inflation has no effect on non-monetary items. Only monetary items in financial statements can be inflation-adjusted. PricewaterhouseCoopers, other Big Four audit firms, the IASB and most historical cost accountants do not understand the concept of Capital Maintenance in Units of Constant Purchasing Power as defined in the Conceptual Framework, Par 4.59 (a) and guide-lined in IAS 29.
What PricewaterhouseCoopers wanted to state was that "Period-end Historical Cost or Current Cost 'financial statements' with non-monetary items restated in units of constant purchasing power, 'are an extension to, not a departure from, historical cost accounting.’ Reporting year financial statements are never inflation-adjusted because it is impossible to inflation-adjust non-monetary items and monetary items in reporting year financial statements are not inflation-adjusted: what happens is the net monetary loss or gain is accounted while monetary items are measured in nominal monetary units. PricewaterhouseCoopers does not understand CMUCPP as authorized in IFRS and guide-lined in IAS 29.
Capital maintenance in units of constant purchasing power automatically maintains the constant purchasing power of capital constant for an indefinite period of time in all entities that at least break even in real value at all levels of inflation and deflation (including during hyperinflation) - ceteris paribus - whether they own any revaluable fixed assets or not.
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