Accountants (and everyone else) make the mistake of blaming the destruction of companies´ profits and capital by their choice of traditional HCA - which includes the stable measuring unit assumption - on inflation.
Accountants identify the problem, namely, that the real values of companies´ profits and capital are being destroyed over time when implementing HCA during low inflation. They make the mistake of blaming inflation instead of their own free choice of the stable measuring unit assumption. This is camouflaged by IFRS approval in the Framework, Par 104 (a) of the stable measuring unit assumption- the stealth enemy in the SA economy wreaking more havoc than inflation, its convenient cover.
The US Financial Accounting Standards Board also blames inflation:
“In Mr. Mosso's view, conventional accounting measurements fail to capture the erosion of business profits and invested capital caused by inflation.” Statement of Financial Accounting Standard No. 33, P. 24
Everyone only sees one enemy being responsible for all of the invisible and untouchable systemic real value destruction in the economy. They think inflation is responsible for all real value destruction.
SA accountants confused by inflation illusion (just like everyone else), further feel that the SARB with its monetary policies and the SA government with its economic policies should "influence" inflation which would then "influence reported results” by inflation. But, it is not inflation destroying the real value of companies´ profits and capital, it is accountants´ choice of traditional HCA which includes their very destructive stable measuring unit assumption. This second enemy is a stealth enemy camouflaged by IFRS approval in the Framework, Par 104 (a) since the way it operates is not understood by SA accountants and accounting lecturers at SA universities. If they understood it, they would have stopped it by now with financial capital maintenance in units of constant purchasing power as they had been authorized by the IASB in the Framework, Par 104 (a) in 1989.
© 2005-2010 by Nicolaas J Smith. All rights reserved
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