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Saturday, 13 April 2013

Understanding IAS 29 per PricewaterhouseCoopers: Corrections 16: Financial statements prepared under IAS 29 can be very (even completely) unreliable and irrelevant depending on the level of hyperinflation


Understanding IAS 29 per PricewaterhouseCoopers: Corrections 16: Financial statements prepared under IAS 29 can be very (even completely) unreliable and irrelevant depending on the level of hyperinflation

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 enable management to make more reliable decisions on capital expenditure plans, as the financial statements are more relevant;’

PricewaterhouseCoopers Understanding IAS 29 2006 p4

Correction 16

Financial statements that are expressed under IAS 29 in a measuring unit that is current at the balance sheet date based on using the monthly published CPI result in the erosion/destruction of a part of the real value of current year profits. They thus impede management in making reliable decisions on capital expenditure plans, as the financial statements do not demonstrate this fact and are thus not fully relevant. They were completely irrelevant and completely unreliable during the 8 years that IAS 29 was implemented during hyperinflation in Zimbabwe. The Zimbabwe economy imploded on 20 November 2008 with full implementation of IAS 29. Thus beware of IAS 29 in terms of the monthly published CPI during hyperinflation.

Only implementing IAS 29 in terms of the Daily CPI will correctly result in capital maintenance in units of constant purchasing power (a departure from HCA) during hyperinflation. Brazil did that, without IAS 29, for 30 years from 1964 to 1994 with governments supplied daily indices based almost entirely on the US Dollar daily exchange rate with their currency.

Both PricewaterhouseCoopers and the IASB simply ignore what was so successfully done during 30 years of very high and hyperinflation of up to 2000 per cent per annum in Brazil because PwC and the IASB do not understand the concept of capital maintenance in units of constant purchasing power as authorized in IFRS in 1989. They blindly believe in the incorrect and misleading “restatement” model as they advise their clients incorrectly and misleadingly.


Nicolaas Smith

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