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."
Accounting values and accounts unstable
monetary items on recognition at their nominal values in nominal monetary units
under all accounting models – including CIPPA. Monetary items not inflation-adjusted
daily over time (this currently – in 2012 – always includes all bank notes and
coins) are then valued daily in fixed nominal monetary units (unstable in real
value) only during the current financial period. The net monetary loss or gain
is, logically and necessarily, calculated and accounted under CIPPA which
implements financial capital maintenance in units of constant purchasing power.
The net monetary loss or gain is also calculated and accounted as required in
IAS 29 Financial Reporting in Hyperinflationary Economies. IAS 29 is not a departure
from, but an extension to Historical Cost Accounting. All historical monetary
items are inflation-adjusted daily in terms of the current (today´s) Daily CPI
thereafter, i.e. once they are reported in historical financial reports,
whether for comparison purposes or not. The historical net monetary loss or
gain (a constant real value non-monetary item once accounted) is thereafter measured
in units of constant purchasing power in terms of the current (today´s) Daily
CPI or daily rate.
high inflation, deflation and hyperinflation determine the always current unstable
real value of the unstable monetary unit (US Dollar, Euro, British Pound,
Bolívar, Yen, Yuan, etc.) and other unstable monetary items within the monetary
economy. This is because of the monetary nature of money.
real value of money held and other unstable monetary items changes equally (all
unstable monetary units are affected evenly) on a daily basis at all levels of
inflation and deflation. The change is quantified with the daily publication of
the Daily CPI or monetized daily indexed unit of account value during low
inflation, high inflation and deflation and the daily US Dollar or other hard
currency parallel rate or Brazilian-style daily Unidade Real de Valor during hyperinflation. The daily black market
or parallel US Dollar exchange rate or street rate is generally constantly (24/7,
365 days a year) available in a hyperinflationary economy.
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.