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Wednesday, 9 January 2013

IASB satisfied with IAS 29 having no effect during hyperinflation



IASB satisfied with IAS 29 having no positive effect during hyperinflation

 


The IASB is satisfied with the way IAS 29 was implemented during the last 8 years of hyperinflation in Zimbabwe with no positive effect. Nothing needs to be done about that matter according to the IASB. According to the IASB, actual financial reporting (accounting) does not affect the economy! A senior IASB director indicated this in a teleconference on 8 January 2013 in relation to measurement in units of constant purchasing power in terms of an Unidade-Real-de-Valor-based Daily Index as proposed under Capital Maintenance in Units of Constant Purchasing Power as an IFRS-authorised alternative to IAS 29. According to the IASB, it is what users do with financial reports that affects the economy.

 

The above IASB indicated position regarding the fact that the Board is satisfied with IAS 29 having no positive effect during hyperinflation is not a very good sign for the research authorised by the IASB regarding the replacement of the failed IAS 29 standard. It thus appears that the IASB would prefer the Argentinean Federation´s proposal to simply carry on with the failed IAS 29-style restatement of period-end financial statements in terms of the measuring unit current at the end of the reporting period – the monthly published CPI available by the earliest 7 days after the month-end - when actual prices change daily – often at a significant daily percentage - during hyperinflation. This was the failed IAS 29 model used during the last 8 years of hyperinflation in Zimbabwe with no positive effect which the IASB is satisfied with. Hyperinflation ended in Zimbabwe in 2008.

 

An amendment to the Argentinean Federation´s 2010 proposal as a replacement of the failed IAS 29 was submitted to the IASB in January 2012. The amendment is based on and changed the title of the Argentinean Accounting Federation´s proposed new IFRS from IFRS ´X` INFLATION to IFRS ´X´ CAPITAL MAINTENANCE IN UNITS OF CONSTANT PURCHASING POWER after it was pointed out to the IASB and the Argentinean Accounting Federation that inflation has no effect on the real value of non-monetary items. A copy of the amended IFRS `X´ CAPITAL MAINTENANCE IN UNITS OF CONSTANT PURCHASING POWER is available here.

 

It now seems that there is a very good chance that the failed fundamental IAS 29 restatement model – that had no positive effect during 8 years of implementation in Zimbabwe´s hyperinflation – would be followed in the future replacement of IAS 29 instead of the real value maintaining IFRS-authorised – but little (not) understood at the IASB - Capital Maintenance in Units of Constant Purchasing Power model.

 

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Nicolaas Smith

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