New accounting concepts introduced under CIPPA

New accounting concepts introduced under CIPPA

1. It is  the first accounting model implementing IFRS authorized financial capital maintenance in units of constant purchasing power at all levels of inflation and deflation.

2 The split of non-monetary items in the two new accounting concepts and terms: (i) Variable real value non-monetary items and

3. (ii) Constant real value non-monetary items meaning that there are not just the generally accepted two - monetary and non-monetary - basic economic items, but, three: monetary, variable and constant items resulting in the new terms

4. Variable item economy and

5. Constant item economy and giving origin to the two new accounting entries never before made:

6. Net Constant Item Loss and

7. Net Constant Item Gain.

8. CIPPA introduces the fact that IFRS authorize not only the generally accepted two capital and capital maintenance concepts, namely, (A) physical and (B) financial capital and capital maintenance, but three (which is a big revelation to the accounting profession), namely (a) physical capital and capital maintenance, (b) financial capital and capital maintenance measured in nominal monetary units (traditional HCA) and (c) financial capital and capital maintenance measured in units of constant purchasing power at all levels of inflation and deflation (CIPPA) since it was authorized in the original Framework (1989), Par 104 (a).                                                                                                     

HCA implements the very erosive stable measuring unit assumption. CIPPA rejects the stable measuring unit assumption at all levels of inflation and deflation. The two accounting models implement two fundamentally different capital and capital maintenance concepts – both authorized in IFRS in the same sentence.

9. Inflation illusion is introduced under CIPPA, namely the mistaken belief that inflation causes the erosion of companies´ capital and profits as taught to all and believed by most accountants and specifically stated in US Financial Accounting Standards by the US Financial Accounting Standards Board when, it is in fact caused, not by inflation, but, by the very erosive stable measuring unit assumption.

 Inflation has no effect on the real value of non-monetary items as specifically stated by two  Turkish academics as follows: “Purchasing power of non monetary items does not change in spite of variation in national currency value,” and easily deduced from Milton Friedman´s now famous statement that inflation is always and everywhere a monetary phenomenon.

10. CIPPA details the fact that the implementation of the HCA model, more specifically the stable measuring unit assumption (and not inflation), causes the unknowing, unintended and unnecessary erosion of that portion of shareholders´ equity never maintained constant by sufficient revaluable fixed assets (revalued or not) during low inflation amounting to hundreds of billions of US Dollars eroded in constant item real value per annum in the world´s constant item economy.

11. CIPPA automatically maintains the constant real value of shareholders´ equity constant for an indefinite period of time in all entities that at least break even in real value during low inflation – ceteris paribus – whether they own any revaluable fixed assets or not and that this would maintain hundreds of billions of US Dollars in constant item real value per annum in the world´s constant item economy when implemented worldwide at the current levels of inflation.

Nicolaas Smith

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