Wednesday, 1 December 2010

Salaries are not monetary items despite Obama´s temporary decree

Trade debtors and trade creditors are constant real value non-monetary items and not monetary items as incorrectly stated by the US Financial Accounting Standards Board, the International Accounting Standards Board, PricewaterhouseCoopers and most probably all others too.

Under the current Historical Cost paradigm many constant real value non-monetary items, e.g. trade debtors, trade creditors, other non-monetary payables, other non-monetary receivables, equity not maintained with sufficient revaluable fixed assets, fixed salaries and wages (President Obama´s federal workers´ salary freeze), fixed rentals, etc. are incorrectly treated as - unnecessarily made into - monetary items. The real values of these items are currently unnecessarily being eroded by the implementation of the stable measuring unit assumption (traditional HCA) during low and high inflation. Their real values would be increased during deflation. In a hyperinflationary monetary meltdown like in the case of Zimbabwe all these items would be unnecessarily eroded completely – because they are unnecessarily treated as monetary items.

Under financial capital maintenance in units of constant purchasing power (Constant ITEM Purchasing Power Accounting - CIPPA) as authorized in IFRS in the Framework, Par 104 (a) in 1989, these items are correctly treated as constant real value non-monetary items and their real values would not be eroded at the rate of low or high inflation or they would not be completely eroded in a hyperinflationary monetary meltdown like what happened in Zimbabwe. Their real values were not eroded during 30 years of high and hyperinflation in Brazil from 1964 to 1994 because they were treated correctly as constant real value non-monetary items in Brazil and updated daily in terms of a daily index supplied by the government.

© 2005-2010 by Nicolaas J Smith. All rights reserved. No reproduction without permission.

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