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Thursday, 23 July 2009

The stable measuring unit assumption is the enemy in the real economy

Fin24.com today reported that:

"Head of research at the South African Reserve Bank (Sarb), Dr Johan van den Heever, said Governor-elect Gill Marcus will be an enemy of inflation when she takes over on November 9. "

I am very happy to hear that.

I am sure that Gill Marcus and the SARB know that inflation is a uniquely monetary phenomenon and only destroys the real value of the Rand - currently at 8% per annum - and other monetary items in the SA monetary economy.

Inflation has no effect on the real value of non-monetary items.

"Purchasing power of non monetary items does not change in spite of variation in national currency value."

Prof. Dr. Ümit GUCENME, Dr. Aylin Poroy ARSOY, Changes in financial reporting in Turkey, Historical Development of Inflation Accounting 1960 - 2005, Page 9.

http://www.mufad.org/index2.php?option=com_docman&task=doc_view&gid=9&Itemid=100

Inflation has no effect on the SA real or non-monetary economy. The Historical Cost Accounting model SA accountants and boards of directors of SA banks and companies choose has a devastating effect on the real value of constant real value non-monetary items never updated in the SA real economy, for example, the Retained Earnings of all SA banks and companies.

SA accountants unknowingly destroy a massive amount - conservatively estimated at about R200 billion per annum - in the real value of non-monetary items never updated in the SA real economy with their very destructive stable measuring unit assumption each and every year.

The stable measuring unit assumption is the enemy in the real economy.
When SA accountants measure financial capital maintenance in units of constant purchasing power as the International Accounting Standard Boards authorized them to do 20 years ago in the Framework, Par. 104 (a) which state that:


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


which is compliant with International Finanicial Reporting Standards, they will reject the stable measuring unit assumption and maintain instead of destroy about R200 billion in the real value of constant real value non-monetary items in the SA real economy for an unlimited period of time.


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