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."
sheet non-monetary assets and liabilities can be measured at any time at their
fair values. During inflation and hyperinflation, price setters in the free
market automatically adjust variable items´ prices to account for the lower
value of the monetary unit of account. The free market price of abuilding would automatically be adjusted in
the free market to reflect the change in the real value of the monetary unit of
account over time.
stable measuring unit assumption, causing the cost of inflation and the cost of
hyperinflation, effects the real value of monetary items over time. It also effects
the real value of constant real value non-monetary items. Inflation and hyperinflation would
have no cost without the implementation of the stable measuring unit
assumption; i.e., without the implementation of Historical Cost Accounting.
Capital Maintenance in Units of Constant Purchasing Power was authorised in
IFRS in 1989 as an alternative to HCA at all levels of inflation and deflation,
including during hyperinflation. The failed IAS 29 is not required during hyperinflation
when an entity implements CMUCPP because the latter is not a HCA model and only HC and CC financial
statements can be restated in terms of the failed IAS 29.
real value of variable real value non-monetary items are thus continuously
adjusted to reflect (1) the change in demand and supply for the item and (2)
the change in the real value of the monetary unit of account; i.e., every time
the general price level changes. When the general price level changes daily,
the price level component of the price is adjusted daily; i.e., every time the
general price level changes which may be more than once a day during severe
price level adjustment for a variable item´s real value does not have to
accompany every change of the general price level as long as the item is not
being exchanged. The moment it is valued in a period end financial report, the
item´s real value can be stated, it can be fair valued, at the measuring unit
current at the end of the financial period. The fact that it has not been fair
valued during the entire financial year before the period end date (or during a
very long period before), does not effect its real value: the stable measuring
unit assumption has no effect on the real value of non-monetary items.
is true for balance sheet constant real value non-monetary items too. For
example, capital can be measured at the measuring unit current at the balance
sheet date. Capital is equal the real value of net assets.
happens naturally in a free market for variable real value non-monetary items
where their prices are determined by supply and demand for an item. See the
free market price for quoted shares, commodities and most variable items in the
world economy. For example, the change in the price of oil is indicated by its
daily quotation in the free market.
hyperinflation the general price level changes daily at a rate as indicated by
the daily US Dollar free-market exchange rate or a URV based Daily Index. Where a government in a hyperinflationary
economy fixes the country´s exchange rate with the US Dollar, this daily change
in the general price level is indicated by the US Dollar daily parallel or
black market rate.
internal economy, internal demand is mostly automatically eroded by the fact
that salaries, wages, rentals, etc. are paid during hyperinflation at a price
level generally behind the actual price level at the time of payment when the
monthly published CPI is used as required by IAS 29. See hyperinflation example
above. The monthly CPI is normally not available at month end. It only becomes
available, generally at the earliest, by the 7th of the following month.
implementation of IAS 29 thus guarantees the erosion of the internal economy in
this manner. This can not be stopped under IAS 29 with the use of the monthly
29 is an inappropriate accounting model.
Maintenance in Units of Constant Purchasing Power in terms of a daily index as
authorised in IFRS in 1989 at all levels of inflation and deflation, including
during hyperinflation, would automatically maintain the constant purchasing
power of capital (equity) constant for an indefinite period of time in all
entities that at least break even in real value – all else being equal.
would also stabilise the constant item economy at all levels of inflation and
deflation, including during hyperinflation.
the entire money suppply on a daily basis with complete co-ordination would
eliminate the total cost of inflation or cost of hyperinflation (not actual inflation
and hyperinflation) from the monetary economy.