It´s the stable measuring unit assumption, stupid!

I do not remember that I have ever stated that I “accuse” Chartered Accountants of destroying value. I state that CAs unknowingly, unintentionally and unwittingly destroy the real value of all constant real value non-monetary items never updated (e.g. Retained Earnings) or not fully updated in the South African real economy at the annual rate of inflation to a conservatively estimated amount of about R200 billion plus per annum when they choose to implement the stable measuring unit assumption – a Generally Accepted Accounting Practice – as part of the Historical Cost Accounting model.


It is the stable measuring unit assumption that destroys the real value of all “non-monetary items which do not hold their value in terms of purchasing power”.

Chartered Accountants choose to implement the stable measuring unit assumption. They are not forced to do that by the SA government - as you are now falsely implying. I have stated this to you before on this thread but you fail to specify where in the SA Companies Act, or SA GAAPs or IASB IFRSs CAs are forced to implement the stable measuring unit assumption. Since they are not – as you well know, you now falsely imply that they are forced by the SA government to do that. That is not true. The SA Government will not fall for your false statement.

I will give you a very clear example:

At the end of year one the company CA in a hypothetical company reported that there was, inter alia, R 1 million cash in a zero interest bank account and that the Retained Earnings balance was R 1 million. The CA decided that the company will do its accounting based on the Historical Cost Accounting model. The company was completely dormant during the second financial year. At the end of the second year the board of directors decided to pay the single owner a dividend of R1 million. Inflation was 13.4% at the end of the second year.

It is very clear that inflation destroy 13.4% of the real value of the R1 million in the zero interest bank account .

Since Retained Earnings is a non-monetary item which do not hold its value it is also very clear that the stable measuring unit assumption (whereby the CA assumed that the Rand was stable as far as the accounting of Retained Earnings was concerned) destroyed 13.4% of the real value of the R1 million Retained Earnings balance during the second year.

CAs choose to implement the stable measuring unit assumption. They are not forced by the SA government or by anyone or anything to do that. They can stop any time they want.

This happens in all SA companies with Retained Earnings balances in the companies.


SA accountants are killing the real economy to the tune of about R200 billion each and every year.

CAs implement the HCA model because choosing it as the basic accounting model is generally accepted. The destruction of real value in the real economy is thus an integral part of the HCA model. CAs unknowingly choose that when they choose the generally accepted HCA model.
The abandoning of the stable measuring unit assumption would obviously lead to zero inflation in the real economy – or zero destruction of real value in the real economy.
All constant items would maintain their real values.

It does nothing to inflation in the monetary economy.

But, it maintains the real value of all constant items in the real economy. That is: 0% inflation in the real economy or maintaining about R200 billion (or maybe even double that) plus in real value in the real economy forever. I can assure you that that would warm the SA government´s heart quite a lot – and everyone´s in South Africa.

It would also make a Zimbabwe situation in the SA economy impossible.

What I propose is not “Remeasuring reported results” of all accounts on a primary valuation basis but inflation-adjusting on a primary valuation basis only all constant real value non-monetary items as they are accounted on a day to day basis during the month and at every date the CPI value changes.
It is all about inflation-adjusted accounts, but, only all constant real value non-monetary items. Not variable items and monetary items on a primary valuation basis. Only constant items.
All salaries and wages and many other values are already inflation-adjusted in SA.

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Inflation destroys an extra R212.54 billion in real value and Mboweni gets a 27% salary increase.

When our Chartered Accountants stop the stable measuring unit assumption as they are allowed to do by International Financial Reporting Standards as issued by the International Accounting Standards Board then workers´ salaries will automatically be inflation-adjusted on a monthly basis and their standard of living will be maintained year after year.

That will also stop our CAs destroying about R200 billion in real value in our real economy each and every year.

In the IASB´s

Framework for the Preparation and Presentation of Financial Statements

Par 104 (a) it is stated:

“Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.”

Measuring financial capital maintenance in units of constant purchasing power means rejecting the stable measuring unit assumption.

IFRSs thus allow the Historical Cost Accounting model and at the same time they also allow our Chartered Accountants the option of rejecting the stable measuring unit assumption when they allow them to measure financial capital maintenance in units of constant purchasing power.

A year ago inflation stood at 7%. It is now 6.4 percentage points higher at 13.4%. A 1% increase in inflation destroys an extra R18.29 billion in the real value of the Rand and about an extra R14.92 billion in the real or non-monetary economy because our CAs assume there is no inflation when they apply the stable measuring unit assumption. That means that the 6.4% increase in inflation destroyed an extra 6.4 X (18.29 + 14.92) = R 212.54 billion during the last year.

So under Mboweni´s watch an extra R212.54 billion have been destroyed in the SA economy during the last year and he gets a 27% increase in salary.

When our CAs stop the stable measuring unit assumption the destruction of real value in the non-monetary or real economy will be zero. That will help Mboweni a lot.

That will take care of about half of the real value destroyed by inflation and in the case of the non-monetary economy, the destruction by the combination of inflation and our CAs stable measuring unit assumption that they can stop in terms of IFRSs any time they want to.