Thursday, 20 August 2009

SA accountants value economic items - they do not simply report on what took place

There are three basic items in the economy:

1. Monetary items

2. Variable items

3. Constant items.

SA accountants value economic items when they account them and prepare financial reports.

Inflation destroys the real value of the Rand and all other Rand monetary items. Inflation has no effect on the real value of non-monetary items. Monetary items cannot be updated or inflation adjusted. SA accountants value monetary items at their original nominal monetary values during the accounting period.
Inflation is the enemy in the SA monetary economy. Tito Mboweni and soon Gill Marcus are inflation´s enemies.

SA accountants value variable items, e.g. property, plant, equipment, quoted and unquoted shares, foreign exchange, inventories, finished goods, etc. in terms of International Financial Reporting Standards at for example market value, fair value, recoverable value, present value and net realizable value.

There is no enemy in the SA variable item non-monetary economy.

Constant items are real value non-monetary items with constant real values over time. Examples are salaries, wages, rentals, issued share capital, retained profits, etc. SA accountant unfortunately value them at historical cost implementing the stable measuring unit assumption. SA accountants unknowingly destroy the real value of constant items never or not fully updated at a rate equal to the inflation rate. This amounts to about R200 billion in the SA real economy.

The stable measuring unit assumption is the enemy in the SA constant item economy.

SA accountants unknowingly and unintentionally destroy the real value of constant items never or not fully updated when they implement the very destructive stable measuring unit assumption as part of the real value destroying traditional Historical Cost Accounting model for an unlimited period of time during indefinite inflation.

SA accountant will boost the SA real economy by about R200 billion for an unlimited period of time - ceteris paribus - when they freely reject the stable measuring unit assumption and measure financial capital maintenance in units of constant purchasing power as the IASB authorized them to do 20 years ago in the Framework, Par. 104 (a).

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