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Monday, 8 September 2014

The IASB could help Venezuela, but would never do that.

If the International Accounting Standards Board were to revise IAS 29 Financial Reporting in Hyperinflationary Economies (which listed companies in Venezuela have been implementing since 2009) to require daily indexing in terms of the Daily CPI, it would help to solve the "massive distortions to relative prices" in Venezuela without the involvement of the Maduro government. 

All constant real value non-monetary items, e.g., issued share capital, all other items in shareholders´equity, all items in the profit and loss account, provisions, trade creditors, trade debtors, all other non-monetary payables, all other non-monetary receivables, all taxes, salaries, wages, rents, pensions, etc. would be maintained constant in real value by virtue of them being required in a revised IAS 29 to be measured in terms of units of constant purchasing power in terms of the Daily CPI. 

Daily indexing - if it were to be required - in IAS 29 "is the key to restoring Venezuela´s macroeconomic health."

IAS 29 requires the use of the monthly published CPI. It had no positive effect during the 8 years it was implemented in Zimbabwe´s hyperinflationary economy. It had no positive effect in Venezuela from 2009 till now. 

The IASB refuse to admit that IAS 29 had no positive effect in Zimbabwe´s hyperinflationary economy. 

The IASB stated that "financial reporting has no effect on the economy", which is one of the silliest statements ever made regarding accounting. Yes, the IASB stated that in January 2013. 

A possible review of IAS 29 had been placed in the very long term future by the IASB: that means possibly never.

How the IASB can carry on - year after year - knowingly ignoring the fact (strongly brought to their attention various times) that a standard they have supported for the last 25 years has absolutely no positive effect in a hyperinflationary economy, is beyond human understanding. 

Power corrupts and absolute power corrupts absolutely. The IASB has absolute power regarding matters relating to IFRS. They are absolutely incorrect in their abuse of their absolute power to refuse to revise IAS 29. 

Nicolaas Smith Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.