Monday, 23 November 2009

Inflation-adjusting constant items during low inflation does affect the economy positively

Ask anyone receiving a wage or a salary and he or she will confirm that inflation-adjusting salaries does make a difference to the economy. It does affect the nature of the underlying resource – salary, wage, rent, reported Retained Profits, dividends receivable, etc – when a constant item value is determined in terms of units of constant purchasing power instead of in nominal monetary units over time during low inflation.

The choices SA accountants make do change those values and do affect the SA economy. All SA accountants who are members of the boards of directors of SA companies listed on the JSE choose between financial capital maintenance in nominal monetary units and units of constant purchasing power in terms of the Framework, Par. 104 (a). JSE listed companies have to do their accounts in terms of IFRS. All SA accountants on their boards of directors thus have to make that choice since they are the accounting experts on those boards of directors and have to advise the boards accordingly. Valuing existing reported constant items in units of constant purchasing power during low inflation do change those values and do affect the SA economy.

The statement that the choices accountants make won’t change those values and won’t affect the economy  is dead wrong.

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

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