One who does not ask a question remains a fool forever

One who asks a question is a fool for five minutes; one who does not ask a question remains a fool forever. Chinese Proverb

The Framework applies

SA accountants of companies listed on the Johannesburg Stock Exchange have to prepare primary financial reports in terms of the IASB´s International Financial Reporting Standards. IFRS are Standards, Interpretations and the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the IASB´s Framework for the Preparation and Presentation of Financial Statements in the absence of a Standard or an Interpretation that specifically applies to a transaction.

“In the absence of a Standard or an Interpretation that specifically applies to a transaction, management must use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. In making that judgement, IAS 8.11 requires management to consider the definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the Framework. This elevation of the importance of the Framework was added in the 2003 revisions to IAS 8." IAS Plus, Deloitte. Date: 21st March, 2010 http://www.iasplus.com/standard/framewk.htm

IAS8, 11:
“In making the judgement, management shall refer to, and consider the applicability of, the following sources in descending order:
(a) the requirements and guidance in Standards and Interpretations dealing with similar and related issues; and
(b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework.”

There are no specific IFRS relating to the valuation of the constant items Issued Share Capital, Retained Earnings, other items in Shareholders Equity, the concepts of capital, the concepts of capital maintenance and the determination of profit or loss. The definitions, the concepts for their measurement and the criteria for their recognition in the Framework are thus applicable in terms of IAS8.11.

A fundamental attribute of the traditional Historical Cost Accounting model which SA boards of directors select when they decide on behalf of JSE listed companies to measure financial capital maintenance in nominal monetary units (a generally accepted accounting fallacy) in terms of the IASB´s Framework, Par 104 (a) is that the companies´ accountants unknowingly, unnecessarily and unintentionally destroy the real values of constant items never maintained as a result of their implementation of the very destructive stable measuring unit assumption.

Accountants, on the other hand, unknowingly create real value in constant items never maintained constant (not decreased at a rate equal to the rate of deflation) as a result of their implementation of the real value creating stable measuring unit assumption during deflation (today mainly in Japan).

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith