Tuesday, 8 September 2009

Third blank spot for SA accountants

We have already asked SA accountants

1. Is there inflation in SA or not?

2. Are there net monetary losses and gains during low inflation?

Now we can ask them: SA accountants how many basic economic items are there in the economy?

3. Two or three basic economic items?

SA accountants do accounting from the viewpoint that there are two basic items in the economy

Monetary items
Non-monetary items

They account variable items they value at Historical Cost, eg. stock when the Historical Cost of inventories is lower than net realizable value and Retained Profits - which is a constant item - both at Historical Cost. They make no difference between HC variable items and HC constant items.

Fact Check: There are three basic items in the economy:

Monetary items
Variable items
Constant items

SA accountants have never heard of constant items although they have been around for 500 years and they have been accounting them and unknowingly and unintentionally destroying their real values at the rate of inflation for the last 357 years.

Currently SA accountants unknowingly destroy about R200 billion PER ANNUM in the SA real economy because of their implementation of the stable measuring unit assumption during low inflation. The IASB authorized them to measure financial capital maintenance in units of constant purchasing power 20 years ago in the Framework, Par. 104 (a) which states:

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

SA accountants refuse point blank to measure financial capital maintenance in units of constant purchasing power.

© 2005-2010 by Nicolaas J Smith. All rights reserved

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