Wednesday, 28 December 2011

Strengths of the CIPPA approach during hyperinflation compared to IAS 29

Strengths of the CIPPA approach during hyperinflation compared to IAS 29
1.       It automatically maintains the constant purchasing power of capital constant for an indefinite period of time in all entities that at least break even in real value during hyperinflation – ceteris paribus: more or less the same as what Brazil did during 30 years of daily indexing of all non-monetary items from 1964 to 1994 (completely ignored by the IASB in the formulation of IAS 29).

2.       It can right now be implemented by any individual company during hyperinflation. However, measurement in terms of a daily rate is not yet authorized in IFRS during hyperinflation. IFRS require the implementation of IAS 29 in terms of the period-end monthly published CPI during hyperinflation. Although CIPPA was authorized in IFRS in the original Framework (1989) Par 104 (a) at all levels of inflation and deflation (including hyperinflation), IAS 8.11 states that a specific standard takes precedence over the Framework.

3.       It can be used to eliminate the effect of hyperinflation from the entire money supply - zero inflation - (excluding from actual bank notes and coins which generally make up about 7% of the money supply during low inflation) only in the case of complete coordination with all money and other monetary items inflation-adjusted daily in terms of a Daily Index or daily US Dollar parallel rate during hyperinflation.

Strengths of IAS 29 compared to CIPPA during hyperinflation

1.       No strengths when implemented, but, it is required by IFRS during hyperinflation for companies to state they are doing their financial reporting in terms of IFRS.

Nicolaas Smith

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