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
Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
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