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."
in the case of variable items is the process of determining the monetary
amounts at which variable items are to be recognised, valued, carried and
accounted on a daily basis in an economy under all levels of inflation and
deflation. This involves the selection of particular bases of measurement.
are valued daily in terms of IFRS, excluding the stable measuring unit
assumption, under financial capital maintenance in units of constant purchasing
power (CIPPA). Variable item revaluation losses and gains are treated in terms
of IFRS. Variable items, when not valued daily in terms of IFRS, would be
updated in terms of a Daily CPI or a monetized daily indexed unit of account
during low and high inflation and deflation and in terms of a daily hard
currency parallel rate or Brazilian – style Unidade
Real de Valor daily index rate during hyperinflation because there is no
stable measuring unit assumption under financial capital maintenance in units
of constant purchasing power at all levels of inflation and deflation (CIPPA).
items in the non–monetary or real economy are valued at, for example, fair
value or the lower of cost and net realizable value or recoverable value or
market value or present value, etc. in terms of IFRS excluding the stable
measuring unit assumption.
real values of variable items exist independently of being valued at their
original nominal Historical Cost values in terms of IFRS. Valuing a variable
item at its original Historical Cost in fixed nominal monetary units during its
entire lifetime does not erode its real value because it would be valued at its
current market value whenever it is finally exchanged or sold in the future.
Any variable item valued at HC, when not being revalued, would be continuously
updated in terms of a Daily Consumer Price Index or other daily index rate
since the stable measuring unit assumption is not applied under financial
capital maintenance in units of constant purchasing power (CIPPA).
all items in financial statements – monetary, variable and constant real value
non–monetary items – were valued at Historical Cost before there were any GAAP,
IAS or IFRS, since money – the monetary unit of account – was generally assumed
to be stable in real value over time: the infamous stable measuring unit
assumption. Today, the traditional Historical Cost Accounting model maintains
this very erosive and very economically destabilizing assumption for the
valuation of all income statement items, all balance sheet constant items and
certain variable items, e.g., inventories which are measured at the lower of
cost and net realisable value. Under financial capital maintenance in units of constant
purchasing power (CIPPA) any item originally valued at HC in terms of IFRS
(e.g. an inventory item) is then updated daily in terms of the Daily CPI or
other daily index rate while it is not valued daily thereafter.
IASB only makes a distinction between monetary and non–monetary items. The
stable measuring unit assumption allows the IASB to side–step the split between
variable real value non–monetary items and constant real value non–monetary
items in the practical application of IFRS under the HC paradigm. Both constant
and variable real value non-monetary items are however inferred in IFRS under
the Constant Item Purchasing Power paradigm. Financial capital maintenance in
units of constant purchasing power (CIPPA) as authorized in the original
Framework, Par. 104 (a) is implemented under the CIPP paradigm.
items may hold their values in terms of purchasing power under HCA as a result
of the ways in which they are valued in terms of IFRS in which their nominal
values are adjusted at the time of exchange or disposal to allow for the many
factors that determine their real values – including inflation, deflation and
hyperinflation. For example: fair value, market value, net realizable value,
present value and recoverable value all adjust for inflation, deflation and
hyperinflation – in the real value of the monetary unit – as part of the
specific valuation process.
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