IFRS and US GAAP authorised CMUCPP 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) in terms of a Daily CPI in entities that at least break even in real value during low and high inflation, hyperinflation and deflation - ceteris paribus. European Accounting Assoc: "Capital maintenance is a competing objective of financial reporting."
is determining the particular basis on which monetary items are to be valued
and accounted on a daily basis in the functional currency – the legal unit of
account for accounting purposes – in an economy under all levels of inflation
and deflation. The functional currency is the currency of the primary
economic environment in which an entity operates. The functional currency is
normally the national (or monetary union) monetary unit which is legal tender
in the economy. In dollarized economies the adopted hard currency is the
functional currency for accounting purposes.
implement financial capital maintenance in nominal monetary units when they
prepare their financial reports in terms of the HCA model. The stable measuring
unit assumption is applied to some – not all – items under HCA.It is applied to all monetary items not
inflation-adjusted on a daily basis under HCA.
items are thus generally not inflation–adjusted under HCA. The Chilean banking system is partially indexed daily using the Unidad de Fomento. Some monetary items
are also inflation–adjusted daily in other economies, e.g., TIPS in the US
economy, where HCA is the generally accepted accounting model.
CIPPA, i.e., financial capital maintenance in units of constant purchasing
power in terms of a Daily CPI during inflation and deflation, there is no
stable measuring unit assumption. All monetary items would thus be
inflation–adjusted on a daily basis in terms of the Daily CPI or monetized
daily indexed unit of account. Historical monetary items as well as current
financial period monetary items would be inflation–adjusted daily. This would
require inflation–indexing of all monetary items in the banking system.
Complete coordination in the economy would eliminate the total cost of
inflation (not actual inflation) from the monetary economy. Chile is the country closest to
achieving this. HCA is the generally accepted accounting model in Chile
may be closer than all other economies to eliminating the cost of inflation (not
inflation) from the country´s monetary economy with the generally accepted
monetary practice of inflation–adjusting a significant part of their money
supply in terms of the Unidad de Fomento
which is a monetized daily indexed unit of account, but the stable measuring
unit assumption (not inflation) is still eroding the real values of constant
items never maintained constant in the country´s constant item economy because
Chile is still implementing the HCA model in 2012. Chile is thus still bearing the
full cost of the stable measuring unit assumption in its constant item economy.
Fully coordinated financial capital maintenance in units of constant purchasing
power (CIPPA) in terms of the UF on a
daily basis would eliminate this cost completely from their economy too.
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