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Wednesday, 25 November 2009

SA accountants´ incomprehensible logic

SA accountants value existing reported Retained Profits in SA companies at Historical Cost, i.e. in nominal monetary units. They assume that changes in the real value of the Rand are not sufficiently important for them to stop their destruction of the real value of existing reported Retained Profits as a result of their stable measuring unit assumption.

They make this assumption while inflation ranges from 0.01% to 25.99% per annum for 3 years in a row.

When inflation increases from 25.99% to 26% for three years in a row totalling 100% which would indicate that SA is in hyperinflation, they would immediately change their collective minds and agree that 26% inflation would result in them destroying 26% of all existing reported Retained Profits in SA companies – but not 25.99% inflation for 3 years in a row.

They would inflation-adjust all non-monetary items – variable and constant items – in SA when inflation is 26% per annum for 3 years in a row – but not at 25.99% for 3 years in a row.

They are currently unknowingly destroying 5.9% or about R200 billion of all existing reported Retained Profits and other constant items never maintained in SA companies. When inflation increases to 25.99% they would unknowingly destroy about R866 billion in this way per annum. They would assume the destruction of R866 billion per annum (at current prices) in this manner is not significantly important.

Kindest regards,

Nicolaas Smith