Saturday, 17 May 2008

Historical Cost Accounting versus revoking the stable measuring unit assumption in SA

Under HCA

1. Variable items are valued correctly in terms of SA Generally Accepted Accounting Practice and International Financial Reporting Standards. No value is being destroyed by SA Chartered Accountants implementing the above or automatically by the combination of inflation and the HCA model.

2. 10.6% inflation destroys R185 billion per annum in R1.751 trillion M3 real value. 2% inflation would have only destroyed R35 billion. Think about that Mr Mboweni. [Tito, your job is most probably worth R150 billion per annum at the moment - and rising. :) ]

3. Chartered Accountants most probably (actual value in the process of being calculated) destroy another R60 billion (estimate) per annum in constant item real value because they assume the Rand is stable (a very silly and a very costly assumption) only when they account constant items never of not fully updated. At 2% inflation they would only destroy R35 billion per annum.

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Revoking the stable measuring unit assumption

A. Variable items would be valued correctly by CA´s exactly as in 1 above.

B. 10.6% inflation will destroy R185 billion per annum in R1.751 trillion M3 real value exactly the same as in 2 above.

C. Chartered Accountants will not destroy any real value in constant items. They will maintain R185 billion (estimated value) per annum in constant items real value in the case of 10.6% cash inflation instead of destroying it. This is the same as investing R60 billion per annum in constant items in the SA economy for an indefinite period of time - all else being equal. There will be 0% inflation in the real economy. The benefits to GDP and the economic growth rate will be unlimited in duration and accrue year after year.

It will result in the automatic monthly updating in terms of the Consumer Price Index of salaries, wages, rents, fees, royalties, retainers, issued share capital, retained income, share premium and share discount account balances, trade debtors, trade creditors, income taxes, company taxes, value added taxes and all profit and loss account items, etc in South Africa´s high inflationary economy.

The above items will be updated on a daily basis in terms of a daily index rate or a daily parallel hard currency rate in a hyperinflationary economy like Zimbabwe´s - as it was done for 30 years by Brazil.

Buy the ebook for $2.99 or £1.53 or €2.68

It will be completely impossible for SA Chartered Accountants to unwittingly carry on with their current destruction of the SA real economy.

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