Thursday, 20 May 2010

The only and perfect remedy

The Framework, Par 104 (a) states: “Financial capital maintenance can be measured in either nominal monetary units or in units of constant purchasing power.” Unfortunately the IASB also authorised the 700 year old status quo - financial capital maintenance in nominal monetary units (the basis of Historical Cost Accounting) which is a fallacy – it is impossible to maintain the real value of financial capital constant with measurement in nominal monetary units per se during inflation and deflation - in the same statement and left its only and perfect remedy as an option which no-one chooses because of everybody’s mistaken belief in the fallacy of “the erosion of business profits and invested capital caused by inflation.”

Fortunately for me, I did not invent the remedy. The IASB authorized the only and perfect remedy in the Framework, Par 104 (a) twenty one years ago, namely, continuous financial capital maintenance in units of constant purchasing power during low inflation and deflation.

Kindest regards

Nicolaas Smith

Copyright © 2010 Nicolaas J Smith

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