Sunday, 5 August 2007

Inflation Accounting

Inflation accounting describes an accounting model to be used during very high and hyperinflation. CIPPA is to be implemented at all levels of inflation and deflation.

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  1. Is there anything like Cash or monetary deflation which also destroys the real value of money?

    Looking at 2009 US scenario and experts comments about need to follow "mark to market" concept does auditor community really believe there is a need to move away from following "Historical Value" concept. If i try to give a thought to it following accounting based on inflationary / deflationary markets will result nothing but a see-saw movements and for a layman it will all just confusing.

    Better to reflect only in notes to final statements the evaluation of market conditions and what it means in short term (i.e. 12 months) till the next evaluation.

    Anyway following all of a sudden mark to market concept is going to create artifical imbalances as the reserves requirements are going to demand more capital inflows just to meet the statutory requirements.And i believe we are living is world which is bent upon destructing itself.

    I simply do not believe all the investments that were made by so many companies can turnout worth a penny.

  2. Mark to market is a new valuation basis. We need to give it time to sort out all the problems around it.

    I support it in principle since it helps in keeping an entity´s real value stable all the time.

    Stability is crucial with a bank since it deals with the creation of money and the ideal is to keep money´s real value stable.