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Friday, 12 April 2013

Understanding IAS 29 per PricewaterhouseCoopers: Corrections 14 and 15: Daily indexing is required



Understanding IAS 29 per PricewaterhouseCoopers: Corrections 14 and 15: Daily indexing is required

Benefits of purchasing power adjusted financial statements

Financial statements that are expressed under IAS 29 in a measuring unit that is current at the balance sheet date provide several benefits:

• They provide management, shareholders and other users with comparable information from period to period, relating to the underlying results of operations, capital maintenance and trends in performance;’

PricewaterhouseCoopers Understanding IAS 29 2006 p4

Correction 14

Under IAS 29 in terms of the monthly published CPI (the way PricewaterhouseCoopers advises its clients to implement IAS 29), a part of the real value of the underlying profit made during the current year is eroded/destroyed. IAS 29 in terms of the monthly CPI does not provide this information. IAS 29 in terms of the monthly CPI causes this to happen as PricewaterhouseCoopers advises its clients.

IAS 29 in terms of the Daily CPI maintains 100 per cent of the real value of trading profit made during the current year. PricewaterhouseCoopers does not advise clients to use the Daily CPI because PricewaterhouseCoopers does not understand that IAS 29 is not about making financial statements more meaning full via “restatement”, but about capital maintenance in units of constant purchasing power during hyperinflation as authorized in IFRS. PricewaterhouseCoopers does not understand the concept of capital maintenance in units of constant purchasing power as authorized in IFRS. PricewaterhouseCoopers still believes that the “restatement” of financial statements as it advises its clients to do will maintain the real value of capital constant.

Corrections 15

From Correction 14 it is clear that the real value of capital is not maintained under IAS 29 in terms of the monthly CPI. The way PricewaterhouseCoopers advises its clients to implement IAS 29 causes them to erode/destroy a part of the real value of their capital.

It is a very well-known fact that IAS 29 was implemented during the last eight years of hyperinflation in Zimbabwe with absolutely no positive effect: Zimbabwe´s economy imploded on 20 November 2008 with full implementation of IAS 29.

Brazil implemented daily indexation of all non-monetary and some monetary items during 30 years (1964 to 1994) of very high and hyperinflation in terms of a government supplied daily index almost entirely based on the daily US Dollar exchange rate. Daily indexation is not a new idea.


Nicolaas Smith

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