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Friday, 13 July 2012

Preface - Part 1



Preface - Part 1



I developed the theoretical basis for Constant Item Purchasing Power Accounting (CIPPA) over the last 16 years since I worked in Angola’s hyperinflationary economy from 1994 to 1997. This project started in Angola’s hyperinflationary economy in 1996. I went to Angola from Portugal in October, 1994 to work at Auto-Sueco (Angola), the Volvo distributor in that country. After 15 months of living and working in a hyperinflationary economy and being responsible for the financial reporting in the company, I convinced Mr Tomáz Jervell, the President of Auto-Sueco, our holding company in Portugal, that I should do our accounting in Angola in US Dollars as from 1 January, 1996. I started writing the book in 1996 about how I accounting-dollarized our daily business operations and daily accounting in Luanda.

The book had many major revisions during the last 16 years. The first title was Zero Inflation. Other titles included Real Value, Maintaining the Wealth of Nations and RealValueAccounting.Com. I think the basic concepts will not change much as from 2012.

The book is the result of my research regarding the effects of the stable measuring unit assumption in accounting and the economy. I first wrote everything about Constant Item Purchasing Power Accounting, including the name.

I realized very early on that measurement in units of constant purchasing power should be used at all levels of inflation and deflation. I identified the split of non-monetary items in variable and constant items by 2005 which made the use of the CIPPA model acceptable to the accounting profession and business community during low and high inflation and deflation. I only realized that it is not inflation but the stable measuring unit assumption eroding companies´ capital and invested profits during 2009.

I named the model Constant Item Purchasing Power Accounting because (a) I identified the split of non-monetary items in variable and constant items and (b) to differentiate CIPPA from the inflation accounting model Constant Purchasing Power Accounting (CPPA) required by International Accounting Standard IAS 29 Financial Reporting in Hyperinflationary Economies only during hyperinflation.  CIPPA is used at all levels of inflation and deflation.
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Nicolaas Smith Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.