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."
It is impossible to adjust reporting year financial
statements for inflation under IAS 29. Reporting year financial statements are
never adjusted for inflation under IAS 29.
Inflation only affects the real value of monetary
items. It is impossible to adjust non-monetary items for inflation. Thus only
monetary items can be adjusted for inflation. This happens in the case of, for
inflation-adjusted government bonds (TIPS in the US) on an
almost worldwide basis ; all mortgages in Colombia are
inflation-adjusted daily in terms of the Colombian Real Value Unit; all
90-day deposits and many other items (25 per cent of the broad M3 money supply)
are inflation-adjusted daily in Chile in terms of the Unidad
da Fomento (UF), etc.
Actual monetary items values in reporting year
financial statements are never
adjusted for inflation under IAS 29. What is done is the net monetary loss or
gain on monetary items are calculated and accounted under IAS 29 and under
Capital Maintenance in Units of Constant Purchasing Power. That is the case
with monetary items.
It is impossible to adjust constant real value
non-monetary items for inflation in current year financial statements or anywhere
else because inflation has no effect on the real value of non-monetary items.
What happens is that constant real value non-monetary items are measured in
units of constant purchasing power as authorized in the Conceptual Framework
(2010), Par 4.59 (a) and guide-lined in IAS 29.
The PricewaterhouseCooper´s statement that
‘Significant changes in the purchasing power of money mean that financial
statements unadjusted for inflation are likely to be misleading.’
should thus be corrected to state:
changes in the purchasing power of money mean that financial statements
prepared under the Historical Cost principle are likely to be misleading
because the net
monetary item loss or gain is not accounted.
The implementation of the stable measuring unit assumption means that Historical Cost financial statements are likely to be misleading because constant
real value non-monetary items are measured in nominal monetary units during
inflation, hyperinflation and deflation and result in the unnecessary erosion (destruction) of real value in constant real
value non-monetary items never maintained constant under this
model during inflation and hyperinflation.
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