Financial reporting values everything that is accounted

Financial reporting involves the valuing, recording, classifying, summarizing and reporting of transactions and events involving the three basic economic items in terms of a depreciating functional currency during inflation and an appreciating functional currency during deflation.

Accounting deals with the valuation and recording of an entity´s daily economic activities.

Accounting deals with economic values on a daily basis when an entity´s economic activities are accounted daily in terms of the three basic economic items. Accounting is the daily valuation of the activities of an economic entity. Accounting is a real net asset valuation of an entity on a daily basis in terms of a Daily Consumer Price Index or daily rate, for example the US Dollar parallel rate during hyperinflation. The real net asset value of an entity is presented in terms of valuations of the three economic items in terms of IFRS by means of the process of accounting.

A statement of financial position (a financial report) is prepared periodically reporting the real net asset value (not the market value or the intrinsic value) of an entity on a specific day, e.g. the end of the month, the end of the quarter, the end of six months, the end of the financial year or sometimes a longer financial period.

Financial reporting is an instant in an entity´s economic activity: a report about the real net asset value of an entity on one single day: on the date of the financial report in terms of the Daily Consumer Price Index or daily rate on that day when the financial report is accessed or viewed on that day under capital maintenance in units of constant purchasing power.

The next day, and every day thereafter, the real net asset value of the entity is generally different because the daily valuations of variable real value non-monetary items have changed, the entity has created more constant real value in the form of net income, has suffered a net loss or extra capital or other resources have been contributed by shareholders or third parties. The entity is a going concern and its real net asset value generally changes day after day.

However, the real net asset value of the entity as reported in the statement of financial position on the date of the report stays constant for an indefinite period of time with reference to the date of the financial report. But, the human perception of value, as represented by the Daily CPI has changed as evidenced by the daily nominal change of the index value. Thus, all items in a historic statement of financial position have to be valued at the current, i.e. today´s, Daily CPI or daily rate.

A statement of financial position prepared under capital maintenance in units of constant purchasing power relates to the real net asset value of an entity on one single day: the date the statement of financial position was prepared when the financial report is accessed or viewed on that day. Thereafter all the values (excluding current period monetary items not inflation-adjusted on a daily basis) change daily either in terms of the Daily CPI or their specific variable item daily valuations.

Economic items are valued or measured when economic transactions and events are accounted. Financial reporting does not simply report on what took place in the past. Accounting is not just a scorekeeping exercise of what happened in the past. Accounting values everything that happens in the economy.

The three fundamentally different basic economic items in the economy, namely, monetary items, variable items and constant items, have economic values expressed in terms of unstable money; i.e. the unstable monetary unit of account. Economic transactions and events involving these three basic economic items are accounted in an organized manner when a double entry accounting model is implemented: journal entries, general ledger accounts, trial balances, cash flow statements, income and expenses in the income statement, assets and liabilities in the statement of financial position plus other financial, management and costing reports.

Accounting entries are valuations of the economic items (the debit items and the credit items) being accounted.

Nicolaas Smith

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