Constant Item Purchasing Power Accounting

Constant Item Purchasing Power Accounting (CIPPA) is the International Accounting Standards Board's basic accounting alternative authorized in International Financial Reporting Standards in the Framework for the Preparation and Presentation of Financial Statements (1989), Paragraph 104 (a) which states: "Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power." It is the IASB-approved alternative to traditional Historical Cost Accounting whereunder ONLY constant real value non-monetary items (NOT variable real value non-monetary items) are measured in units of constant purchasing power; i.e. continuously inflation-adjusted or updated by applying the monthly change in the Consumer Price Index, during low inflation and deflation.


Monetary items, variable real value non-monetary items and constant real value non-monetary items are the three fundamentally different basic economic items in the economy.

Examples of constant items are issued share capital, retained income, capital reserves, all other items in shareholders´ equity, trade debtors, trade creditors, provisions, deferred tax assets and liabilities, all other non-monetary payables, all other non-monetary receivables, salaries, wages, rentals, all other items in the income statement, etc. valued in units of constant purchasing power during low inflation and deflation when financial capital maintenance in units of constant purchasing power (CIPPA) is implemented during low inflation and deflation.

Examples of variable items are property, plant, equipment, listed and unlisted shares, inventory, foreign exchange, etc. Variable items are valued in terms of IFRS at for example fair value, market value, recoverable value, present value, net realizable value, etc. or Generally Accepted Accounting Principles (GAAP) during non-hyperinflationary periods.

Monetary items are always valued at their original nominal HC monetary values in nominal monetary units during the current accounting period under all accounting and economic models because it is impossible to inflation-adjust money and other monetary items; monetary items being money held and other items with an underlying monetary nature. Examples of monetary items are bank notes and coins, bank account balances, all monetary loans owed or granted, house loans, car loans, consumer loans, student loans, government and commericial bonds, ets.

CIPPA is a price-level accounting model which implements the principle of financial capital maintenance in units of constant purchasing power during non-hyperinflationary periods. It automatically maintains the real value of all constant real value non-monetary items constant in all entities that at least break even, including banks´ and companies´ capital base, for an unlimited period of time (forever) - all else being equal - whether these entities own revaluable fixed assets or not and without the requirement of additional capital from capital providers in the form of extra money or extra retained profits simply to maintain the existing constant real non-monetary value of existing constant real value capital constant. This is opposed to the traditional Historical Cost Accounting model which unknowingly, unnecessarily and unintentionally erodes the real value of that portion of shareholders´equity never maintained constant as a result of insufficient revaluable fixed assets (revalued or not) during low inflation. The IASB´s Framework, Par 104 (a) is applicable as a result of the absence of specific IFRS relating to the concepts of capital and capital maintenance and the valuation of specific constant real value non-monetary items.

Constant Purchasing Power Accounting (CPPA) as defined in International Accounting Standard IAS 29 Financial Reporting in Hyperinflationary Economies is the IASB´s inflation accounting model required to be implemented ONLY during hyperinflation under which ALL non-monetary items (variable and constant real value non-monetary items) are measured in units of constant purchasing power by applying the change in the period-end CPI.

Accountants can freely choose the Constant Item Purchasing Power Accounting model to implement a financial capital concept of invested purchasing power. They will thus implement a constant purchasing power financial capital maintenance concept and they will implement a constant purchasing power profit/loss determination concept in units of constant purchasing power instead of in real value eroding nominal monetary units during low inflation.

Copyright (c) 2005-2011 Nicolaas J Smith. All rights reserved. No reproduction without permission.

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