Thursday, 1 October 2009

This is not inflation accounting

Constant ITEM Purchasing Power Accounting, despite being approved by the IASB in the Framework twenty years ago, is completely ignored by accountants in non-hyperinflationary economies even though it would maintain instead of destroy the real values of not only all income statement constant items but also all balance sheet constant real value non-monetary items for an unlimited period of time during low inflation and deflation. CIPPA would stop SA accountants unknowingly destroying about R200 billion in the real value of constant items in the SA real economy each and every year. CIPPA would result in SA accountants knowingly boosting the SA real economy by at least R200 billion per annum for an unlimited period – ceteris paribus.

The reason accountants ignore CIPPA is because any price-level accounting model is generally viewed by almost all accountants and accounting authorities as a 1970-style failed and discredited inflation accounting model that requires all non-monetary items - variable real value non-monetary items and constant real value non-monetary items - to be inflation-adjusted by means of the CPI.

SA accountants forego the opportunity to implement the substantial real value maintaining benefits of measuring financial capital maintenance in units of constant purchasing power in SA companies and the economy in general. This results in the unknowing and unintentional destruction by SA accountants of billions of Rand in real value in the SA real economy – in most companies´ Retained Earnings (to name just one item unknowingly destroyed by SA accountants like this) - year in year out because they choose to measure financial capital maintenance in nominal monetary units and implement the very destructive stable measuring unit assumption as part of the real value destroying HCA model in SA when they maintain the stable measuring unit assumption for an unlimited period of time during indefinite inflation.

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

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