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Wednesday, 12 August 2009

SA accountant value destroyers - for dummies

Your company´s capital and Retained Profits are the same as your salaries and wages: constant real value non-monetary items. If your accountant refuses to update them at the inflation rate, then he or she destoys their real values at a rate equal to the inflation rate

It takes SA accountants currently just 11 years to unknowingly destroy 50% of the real value of all Retained Profits SA companies and SA banks hold back to supposedly "grow" their businesses as well as 50% of the real value of capital of companies with no fixed assets.

Accountants use their unbelievably destructive and unbelievably silly stable measuring unit assumption to do this.

This amounts to about R85 billion per annum just in the Retained Profits of JSE listed companies - each and every year: it will never stop during inflation with Historical Cost Accounting.

This will carry on forever if we (or the SA government) cannot get them to do what the International Accounting Standard Board authorized them to do 20 years ago: to reject their very silly stable measuring unit assumption and to maintain companies´ and banks´ investment capital and Retained Profits in units of constant purchasing power.

Basically SA accountants do everything perfectly right in accounting till they get to valuing companies´ capital and retained profits.

Then they suddenly pretend that they are very dumb. They pretend that there is no such thing as inflation. They pretend that the Rand is perfectly stable - that inflation is always zero percent. Can you believe that!?

Then they value companies capital and Retained Profits at historical cost thus unknowingly destroying these items´ real values at a rate equal to the rate of inflation.

It is not inflation destroying companies´ capital and Retained Profits. It is our accountants implementing their silly stable measuring unit assumption.

They can freely stop that any time they want and start boosting the SA real economy by about R200 billion PER ANNUM for an unlimited period of time: forever.

All they have to do is do what the IASB approved TWENTY YEARS AGO.

Do you know any accountants?

Kindest regards,

Nicolaas Smith