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Friday, 12 March 2010

How to kill the stable measuring unit assumption

Non-monetary items are subdivided in variable and constant items. Only constant items have to be inflation-adjusted in terms of the Framework, Par 104 (a) to maintain their real values constant during low inflation in order to measure financial capital maintenance in units of constant purchasing power instead of in nominal monetary units. That is what this blog is about. Variable items are valued in terms of IFRS or SA GAAP in a manner that takes into account all elements - including inflation - which determine the variable item’s real value at the date of valuation during low inflation and deflation. Monetary items are always valued at their original nominal monetary values under all accounting models and under all economic environments.

This blog is about SA accountants maintaining the real values of all constant real value non-monetary items - e.g., SA banks´ and companies´ Shareholders´ Equity – constant during low inflationary conditions for an unlimited period of time – ceteris paribus - by implementing the real value maintaining financial capital maintenance in units of constant purchasing power model as approved in the IASB´s Framework, Par 104 (a) in 1989.

This blog is about SA accountants indexing or inflation-adjusting only constant items by implementing the Constant ITEM Purchasing Power Accounting model as approved in the IASB´s Framework, instead of unknowingly and unintentionally destroying their real values on a massive scale with their implementation of the very destructive stable measuring unit assumption as it forms part of the traditional HCA model when they maintain the stable measuring unit assumption for an unlimited period of time during indefinite inflation.

This blog is about SA accountants choosing to measure financial capital maintenance in SA banks and companies in real value maintaining units of constant purchasing power during low inflation as approved in the IASB´s Framework, Par 104 (a) instead of in nominal monetary units as a result of their choice to implement the very destructive stable measuring unit assumption during low inflation also authorized by the IASB in the Framework, Par 104 (a) twenty one years ago.

This blog is about SA accountants rejecting the stable measuring unit assumption and instead adopting IASB-approved real value maintaining constant purchasing power units as the measurement basis for only constant items including SA banks´ and companies´ Shareholders´ Equity and not only for income statement constant items, e.g. salaries, wages, rentals, etc during non-hyperinflationary conditions.

This blog is about stopping SA accountants unknowingly destroying about R200 billion per annum in real value in the SA real economy because they choose to implement the traditional HCA model when they maintain the very destructive stable measuring unit assumption for an unlimited period of time during indefinite inflation instead of the IASB-approved real value maintaining CIPPA model.

SA accountants make the Historical Cost Mistake by implementing the very destructive stable measuring unit assumption during inflation as part of the traditional HCA model for an unlimited period of time during indefinite inflation.

This blog is about SA accountants being able to maintain about R200 billion per annum of real value in the SA real economy for an unlimited period of time complying with IFRS instead of unknowingly destroying that value year in year out as they unknowingly do at the moment when they maintain the stable measuring unit assumption for an unlimited period of time during indefinite inflation.

This blog is about SA accountants abandoning the very destructive traditional HCA model and adopting the real value maintaining CIPPA model in SA´s low inflationary economy as authorized in 1989 in the IASB´s Framework, Par 104 (a).

Kindest regards

Nicolaas Smith

Copyright © 2010 Nicolaas J Smith