Saturday, 8 August 2009

Don´t shoot the messenger - again

Bertie quotes on his blog:

"They mention research by Arie de Geus, ex Shell, that shows the life expectancy of new firms in Europe or Japan to be less than 13yrs, down from 20 in the late 70s and early 80s."

Yes, and Historical Cost Accounting helps to destroy them.

We all learn as first year accounting students doing company law that a company has an infinite life-time - which it suppose to have.

However, that is not true under the current 500 year old Historical Cost paradigm.

Historical cost accountants implementing the stable measuring unit assumption unknowingly destroy all companies´ that do not have revaluable fixed assets with original updated real value equal to the updated original real value of all contributions to shareholders´ equity - at the rate of inflation.

Imagine 3M started 200 years ago. Imagine the USD 100 000 200 year old original issued share capital. Update that for inflation over the last 200 years in the USA and how many millions do you get?

But, that original USD 100 000 (for example) are still there in 3M´s books today at - what value do you think? Yes!! USD 100 000. It´s real value has been destroyed by all the 3M historical cost accountants over the last 200 years implementing the stable measuring unit assumption destroying 3M´s issued share capital, retained earnings and all other items in shareholders´ equity at the annual rate of inflation as they are doing right this moment.

I plan to stop that.

But, I am only the messenger.

The IASB has already approved real value maintain ing financial capital maintenance in units of constant purchasing power during low inflation 20 years ago in the Framework, Par. 104 (a) that states: "Financial capital maintenance can be measured in either nominal monetary units OR IN UNITS OF CONSTANT PURCHASING POWER."

Not a single accountant does that world wide - for various reasons that happened over the last 500 years.

© 2005-2010 by Nicolaas J Smith. All rights reserved
No reproduction without permission

No comments:

Post a Comment