Price-level accounting as Harvey Kapnick hoped for in 1976 clearly does not prevail for balance sheet constant items and most income statement items, except during rare instances of hyperinflation (e.g., Turkey’s latest period of hyperinflation) when companies are required to implement IAS 29 which is the IASB´s Constant Purchasing Power inflation accounting model and the tax authorities accept the restated amounts as the new real values of those items as happened in the case of Turkey.
Price-level accounting generally did prevail in the Brazilian economy during the 30 years from 1964 to 1994 when they indexed many variable and constant items in their non-monetary or real economy with daily indexation with a daily index value supplied by their government. They stopped that with the full implementation of the traditional HCA model, financial capital maintenance in nominal monetary units and the stable measuring unit assumption when they changed the Unidade Real de Valor into their latest currency, the Real, in 1994. They stopped daily indexation which is, in principle, the same as continuous financial capital maintenance in units of constant purchasing power.
Price-level accounting does prevail in the valuation of certain income statement items, e.g. salaries, wages, rentals, etc. which are inflation-adjusted annually by means of the CPI in most economies.
If SA accountants understood that the implementation of the stable measuring unit assumption during low inflation results in the unknowing, unnecessary and unintentional destruction by SA accountants of massive amounts of real value in constant items never maintained in the SA economy, they would have called for its rejection by now.
Copyright © 2010 Nicolaas J Smith
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