IFRS authorize

(Summary of CIPPA)


IFRS authorize:

1. Financial capital maintenance in units of constant purchasing at all levels of inflation and deflation in the original Framework (1989), Par 104 (a). This leads to:

2. The split of non-monetary items in variable real value non-monetary items and constant real value non-monetary items. When some items are authorized to be measured in units of constant purchasing power it logically means that some items have constant real values. These constant items cannot be monetary items since monetary items have unstable real values during inflation and deflation. They have to be non-monetary items with constant real values. When some non-monetary items have constant real values it logically means that some non-monetary items have variable real values.

3. The rejection of the stable measuring unit assumption. This leads to:

4. The elimination of the entire cost of the stable measuring unit assumption from the constant item economy: all constant items are always and everywhere measured in units of constant purchasing power (not inflation-adjusted: inflation is always and everywhere a monetary phenomenon and has no effect on the real value of non-monetary items) which results in zero erosion of real value in constant items.

5. Updating (not inflation-adjustment – see above) of all historical variable items since there is no stable measuring unit assumption under financial capital maintenance in units of constant purchasing power (CIPPA).

6. Daily inflation-adjustment of all monetary items: there is no stable measuring unit assumption, thus, monetary items are inflation-adjusted which is required on a daily basis based on a lagged and smoothed Consumer Price Index to avoid excessive arbitrage speculation. This leads to:

7. The elimination of the entire cost of inflation from the economy. This leads to:

8. The extinction of the concept of a net monetary loss or gain in the economy.

All the above leads to:

9. Automatic maintenance of the constant purchasing power of capital forever in all entities that at least break even during inflation and deflation – ceteris paribus (CIPPA). This should lead to:

10. The end of the Historical Cost Accounting model/paradigm.

Nicolaas Smith

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