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Friday, 24 January 2014

First prize for The Silliest Statement Regarding Accounting in 2014-to-date

First prize for The Silliest Statement Regarding Accounting in 2014-to-date

First Prize: SOUTH AFRICAN INSTITUTE OF CHARTERED ACCOUNTANTS

Response to Question 26

"If capital maintenance concepts will only be used for high inflation issues, the question could be asked whether the concepts should be retained in the Conceptual Framework or not."

See SAICA comment letter Here on Page 2 dated 2014-01-24

THE SOUTH AFRICAN INSTITUTE OF CHARTERED ACCOUNTANTS is well-known for its long-standing lack of knowledge regarding the fundamental role capital maintenance has in the accounting framework.

In 2008 it stated publicly on its website that it is against the rejection of the stable measuring unit assumption and that it would be an insult to users to inflation-adjust financial reports prepared during low inflation.

Now SAICA has gone so far as to suggest that capital maintenance should be completely removed from the Conceptual Framework. This is at the same time when other national accounting standard-setters highlight the importance of sorting out capital maintenance as soon as possible in the Conceptual Framework.

SAICA seems to be the worst national accounting standard-setting authority as far as understanding what capital maintenance is about. This may be ascribed to the fact that South Africa has never been in hyperinflation. The fact that accountants are generally not expected to think for themselves as far as accounting matters are concerned, but rather to follow the letter and word of IFRS is mainly to blame for SAICA´s shocking lack of knowledge about the importance of capital maintenance under all levels of inflation and deflation.

However, it must be admitted that this shocking lack of knowledge of the fundamental role capital maintenance has in the accounting framework is a very general state of affairs in the accounting profession worldwide (especially at the IASB) except in Australia, Russia and most Latin American countries. That does not mean that capital maintenance during low inflation and deflation should be ignored under IFRS as suggested by SAICA.

On the other hand: It is true that capital is 100% maintained in nominal monetary units in every single company in the world which manages to balance its books under Historical Cost Accounting. 

So, SAICA is right, in NOMINAL terms. SAICA feels so strongly about its support for the stable measuring unit assumption during inflation and deflation that it stated that it is an insult to users to inflation-adjust financial reports prepared during low inflation. 

Related: Third Prize for the Silliest Statement about Accounting for 2013-to-date

Nicolaas Smith

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