Thursday, 2 July 2009

ABSA accountants are busy unknowingly destroying about R3 billion right now

SA banks are safe according to the SARB

SA banks may be adequately capitalized as per the SARB.

What the SARB can not deny is that the banks´ accountants are unknowingly destroying the real value of their Retained Earnings at 8% per annum because their Boards of Directors choose to implement the very destructive stable measuring unit assumption during low inflation.

ABSA´s accountants are currently unknowingly destroying about R3 billion in the real value of ABSA´s Retained Earnings during 2009. I dare the SARB or anyone to prove me wrong.

I will still calculate the unintentional real value destruction in the other banks by their accountants because their Boards chose the Historical Cost basis.

They destroyed R3.338 billion during 2008. They will carry on at that rate - ceteris paribus - while they carry on acting dumb and making as if there is no such thing as inflation as far as the valuation of constant items are concerned.

Inflation has no effect on the real value of non-monetary items. Inflation can only and does only destroy the real value of the Rand. Nothing else. However, the Rand is the unstable unit of account in the SA economy. ONLY accountants ASSUME it is stable ONLY for the valuing of constant items - nothing else.

The real values of constant items never maintained are unknowingly being destroyed by SA accountants choosing to implement the real value destroying Historical Cost Accounting model which includes the very destructive stable measuring unit assumption.

When they choose to measure financial capital maintenance in units of constant purchasing power as authorized in the IASB´s Framework, Par. 104 (a) twenty years ago and which is compliant with IFRS, they will stop this unintentional destruction. Instead they will maintain those values for an unlimited period of time and the SA economy will be boosted by about R200 billion per annum for an indefinite period of time.

So, it is not inflation doing the destroying in constant items - it is our accountants implementing the stable measuring unit assumption.

I dare anyone - including SARB - to prove me wrong.

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