IAS 29 Financial Reporting in Hyperinflationary Economies was required to be implemented by all companies listed on the Zimbabwe Stock Exchange during hyperinflation in that country. That made no difference and could not make any difference to the hyperinflationary spiral of hyper-destruction of the real value of the ZimDollar because hyperinflation is always and everywhere a monetary phenomenon and can only destroy the real value of the hyperinflationary currency and other monetary items. Hyperinflation per se has no effect on the real value of non-monetary items in a hyperinflationary economy. See Gucenme and Arsoy.
However, if IAS29 was applied on a daily basis applying the daily parallel rate to all non-monetary items (not just most consumer products) in Zimbabwe, then the Zimbabwean real economy would not have unknowingly been destroyed to the extent it was destroyed by the implementation of the stable measuring unit assumption in the Zimbabwean real economy during hyperinflation.
The real values of constant real value non-monetary items in a hyperinflationary economy are destroyed by HC accountants´ choice of financial capital maintenance in nominal monetary units (one of the IASB-approved popular accounting fallacies) when they implement the HC model (see PricewaterhouseCoopers in Understanding IAS 29) which includes the stable measuring unit assumption (another IASB approved popular accounting fallacy) during hyperinflation.
Zimbabwe accountants then dutifully restated their HC financial statements at year end by applying the CPI at the year end date to give them meaningless results after they had unknowingly destroyed the real value of constant real value non-monetary items in their companies by first implementing HCA during hyperinflation as encouraged by the IASB before applying IAS 29 restatement to what was left of their companies at year end as required by the IASB.
They also unknowingly played their full part in the destruction of their real economy in combination with hyperinflation, inappropriate government economic policies and inappropriate Reserve Bank of Zimbabwe monetary policies. The joke about an accountant being like a man who hides away in the hills during the battle and afterwards comes down and bayonets the wounded, comes to mind. :-)
Historical Cost Accounting should be banned by law during hyperinflation and low inflation. That would be the quikest and best way to solve many, many problems. That is going to be the end result, in any case. Not by law, but by general acceptance. The SA real economy would gain about R200 billion per annum for an unlimited period of time and SA accountants would - for the first time - properly fulfil their roles as guardians of constant real non-monetary value in the economy which should be the real objective of their training and their compensation.
It is the SARB´s job to lower the destruction of real value of the Rand and other monetary items in the SA monetary economy by lowering inflation. Accountants can do nothing with accounting about that. They can, however, ensure zero destruction of real value in the constant item economy for an unlimited period of time with continuous financial capital maintenance in units of constant purchasing power as they have been authorized by the IASB in the Framework, Par 104 (a) twenty years ago. Instead, they currently unknowingly, unnecessarily and unintentionally destroy that about R200 billion each and every year in the real values of constant items (e.g. all reported Retained Profits in SA companies) never maintained with their implementation of financial capital maintenance in nominal monetary units - the very popular accounting fallacy also authorized by the IASB in the exact same Framework, Par 104 (a) in 1989.
The Framework, Par 104 (a) states:
"Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power."
A very long standing, very popular, very destructive accounting fallacy as well as its only and perfect antidote both approved by the IASB in the same statement. It is so strange it is hard to believe: but, it is true.
© 2005-2010 by Nicolaas J Smith. All rights reserved
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