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Friday, 13 April 2012

Accounting is a measurement instrument per David Mosso

Accounting is a measurement instrument per David Mosso

Economic items are valued or measured whenever economic transactions and events are accounted. Financial reporting does not simply report on what took place in the past in nominal historical cost terms. Accounting is not just a scorekeeping exercise of what happened in the past. Financial reporting values everything that happens in the economy on a daily basis.



The three fundamentally different, basic economic items in the economy, namely, monetary items, variable items and constant items, have economic values expressed in terms of unstable money which is also the unstable monetary unit of account. Economic transactions and events involving these three basic economic items are valued and accounted in an organized manner when a double entry accounting model is implemented: journal entries, general ledger accounts, trial balances, cash flow statements, income and expenses in the income statement, assets and liabilities in the balance sheet plus other financial, management and costing reports.



Accounting entries are valuations of the economic items (the debit items and the credit items) accounted.



Financial reporting is the valuing, classifying, recording, summarizing and reporting of economic transactions and events in an entity in terms of the three basic economic items measured in an unstable functional currency at all levels of inflation and deflation. It is the daily valuation and recording of an entity´s economic activities in terms of an unstable functional currency. Under Constant Item Purchasing Power Accounting financial reporting deals with economic values on a daily basis when an entity´s daily economic activities are accounted.



Financial capital maintenance in units of constant purchasing power (CIPPA) is a real net asset valuation of an entity in terms of a Daily Consumer Price Index or daily monetized indexed unit of account, e.g. the Unidad de Fomento, during low inflation, high inflation and deflation or a daily rate, for example the US Dollar parallel rate or a Brazilian-style Unidade Real de Valor daily index rate, during hyperinflation. The real net asset value of an entity is reported in financial terms by means of valuation of the three basic economic items in terms of IFRS, excluding the stable measuring unit assumption, implementing financial capital maintenance in units of constant purchasing power in terms of a daily rate (CIPPA).


Nicolaas Smith

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