Monday, 30 November 2009

Two economic enemies

There are two processes of systemic real value destruction in the SA economy. The first process is by the well known enemy inflation. This economic enemy manifests itself in the Rand´s store of value function and only operates in the SA monetary economy since inflation can only destroy the real value of the Rand and other monetary items - nothing else. Inflation has no effect on the real value of variable or constant real value non-monetary items.

The second economic enemy is SA accountants´ very destructive stable measuring unit assumption which they implement as part of the real value destroying traditional Historical Cost Accounting model in most, if not all, SA companies during low inflation. This second process of systemic real value destruction in the SA economy manifests itself in accountants´ stable measuring unit assumption only in the constant item part of the SA non-monetary or real economy when they freely choose to measure financial capital maintenance in nominal monetary units when they implement the HCA model in most SA companies during low inflation.

This second enemy is a stealth enemy since the way it operates is not understood by accountants and accounting lecturers at universities. If they understood it, they would have stopped it by now as they have been authorized by the IASB 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."

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

No reproduction without permission.

No comments:

Post a Comment