Differences between CIPPA and CPPA (updated)

Differences between CIPPA and CPPA (updated)

‘Constant Purchasing Power Accounting (CPP) is a consistent method of indexing accounts by means of a general index which reflects changes in the purchasing power of money.  It therefore attempts to deal with the inflation problem in the sense in which this is popularly understood, as a decline in the value of the currency. It attempts to deal with this problem by converting all of the currency unit measurement in accounts into units at a common date by means of the index.’

(Whittington, 1983)

It is very clear from the above that Prof. Whittington also considered – at that time – that ‘indexing accounts by means of a general index’ would ‘deal with the inflation problem’ and not the stable measuring unit assumption problem. The term ‘stable measuring unit assumption’ does not appear in his book at all.

CPPA is an inflation accounting model and is dealt with in this book as it is implemented in terms of IAS 29.

CIPPA implements financial capital maintenance in units of constant purchasing power in terms of a daily rate which automatically maintains the constant purchasing power of owners´ equity constant for an indefinite period of time in entities that at least break even in real value at all levels of inflation and deflation – ceteris paribus – whether they own any revaluable fixed assets or not. The net monetary loss or gain and the net constant item loss or gain are calculated and accounted in the income statement. CIPPA is a basic accounting model alternative to HCA at all levels of inflation and deflation including during hyperinflation. It is not only an inflation accounting model to be implemented during hyperinflation like CPPA. CIPPA is a price–level basic accounting alternative to HCA authorized in IFRS at all levels of inflation and deflation. The stable measuring unit assumption is never implemented under CIPPA.

Differences

CIPPA

CPPA

1                     When implemented

Implemented at all levels of inflation and deflation.

Only implemented during hyperinflation as required by IAS 29.

                                                            

2                     Stable measuring unit assumption

The stable measuring unit assumption is never implemented.

The stable measuring unit assumption is implemented as part of a number of different measurement bases in the preparation of HC or CC financial reports which are then restated in terms of the period-end monthly published CPI only during hyperinflation.

3                     Non–monetary items

Non–monetary items are split in variable  and constant real value non–monetary items.

No split in non–monetary items.

4                     Capital concept

Constant item purchasing power financial    capital concept implemented.

Nominal financial capital concept implemented in HC or CC financial reports then restated in terms of the period–end monthly published CPI only during hyperinflation.

5                     Capital maintenance concept

Financial capital maintenance in units    of constant purchasing power concept        implemented; i.e., owners´ equity      is measured in units of constant purchasing power in terms of a daily rate at all levels of inflation and deflation.

Nominal financial capital maintenance concept implemented; owners´ equity is measured in nominal monetary units in HC or CC financial reports during the accounting period which are then restated in terms of the period–end monthly published CPI only during hyperinflation.

6                     Inflation–accounting model

A basic accounting model implemented  at all levels of inflation and deflation including during hyperinflation.

Only an inflation accounting model implemented during hyperinflation.

                                                                                                                       

7                     IFRS authorization

Originally authorized in IFRS in the Framework (1989), Par. 104 (a).

Authorized in IFRS in IAS 29 in 1989.

8                     Measurement

Daily measurement of all items in terms of a daily rate as detailed below.

Non-monetary items in HC or CC financial reports are restated at the end of the accounting period in terms of the period-end monthly published CPI.

                                  

9                     Measurement of monetary items

Historic and current period monetary    items are inflation–adjusted daily in terms of a daily rate. When not inflation  –adjusted daily during the current  period, the net monetary loss or gain   is calculated and accounted.

Current period monetary items are measured in nominal monetary units. They are not restated. Inflation-indexed items are adjusted in accordance with the contract in order to state the amount outstanding at the end of the reporting period. The net monetary loss or gain is calculated and accounted in terms of incorrectly defined monetary items.

                                                                                    

10                 Measurement of variable items

Variable items are measured in terms of IFRS excluding the stable measuring unit assumption and the definitions of monetary items (2011). They are updated daily in terms of a daily index when not measured daily.

Non–monetary items are not split in variable and constant items. Variable items in HC or CC financial reports are restated in terms of the period–end monthly published CPI. The daily hard currency parallel rate is used for the valuation of some, not all, variable items at the time of purchase during hyperinflation. Most variable item selling prices are updated daily in terms of the daily parallel rate.

11                 Measurement of constant items

Historic and current period constant items are always and everywhere measured in units of constant purchasing power on a daily basis in terms of a daily rate at all levels of inflation and deflation.

Non–monetary items are not split in variable and constant items. Constant items, e.g., equity, is measured in nominal monetary units in HC or CC period-end financial statements during hyperinflation. All non–monetary items in these financial reports are restated in terms of the period–end monthly published CPI.

12                 Net constant item loss or gain

Net constant item loss or gain calculated and accounted. This is a new accounting concept.

A net constant item loss or gain concept does not exist under HCA, CPPA, IFRS or US GAAP.

13                 Measurement of trade debtors and trade creditors

Constant real value non–monetary payables and receivables (e.g., trade debtors and trade creditors) are measured in terms of a daily rate. The net constant item loss or gain is accounted where applicable.

Trade debtors and trade creditors and other non-monetary payables and receivables are treated as monetary items and measured in nominal monetary units in HC or CC financial reports. They are not restated. The net real value loss or gain as a result of the implementation of the stable measuring unit assumption during hyperinflation is incorrectly accounted as a net monetary loss or gain in terms of IAS 29. It is a net constant item loss or gain.

14                 Consumer Price Index 

Daily Consumer Price Index or a monetized daily indexed unit of account used during low and high inflation and deflation. Daily US Dollar parallel or Brazilian-style URV daily index rate used during hyperinflation.

Monthly Consumer Price Index used during hyperinflation as per IAS 29.

15                 Parallel rate

Daily hard currency parallel rate used  during hyperinflation in the absence of a Brazilian-style daily index for the daily valuation of variable and constant real value non-monetary items as well as the calculation and accounting of the net monetary gain or loss when monetary items are not inflation-adjusted daily in terms of the daily parallel rate as well as for the accounting of the net constant items loss or gain.

Daily hard currency parallel rate used for the valuation of some, not all, variable items at the time of purchase during hyperinflation. These values are then restated in HC or CC financial reports in terms of the period-end monthly published CPI. Not used for the daily measurement of constant items. Used for the daily updating of the selling prices of most variable items.

16                Indexation

CIPPA is daily indexation at all levels of inflation and deflation.

Monthly indexation can be used only during hyperinflation.

17                 Monetized daily indexed unit of account

A monetized daily indexed unit of account can be used at all levels of inflation and deflation.

A monetized daily indexed unit of account not used during hyperinflation.

18                Constant real value non-monetary item concept

The constant real non-monetary item concept, namely that there are non-monetary items with constant real non-monetary values over time, is a fundamental concept under CIPPA.

There is no concept of a constant real value non-monetary item under Historical Cost Accounting. CPPA is taken to be implemented in terms of IAS 29. IAS 29 requires the restatement of Historical Cost or CC financial statements.

19                Net assets

The real value of net assets is always equal to the real value of capital.

The nominal value of net assets is always equal to the nominal value of capital.

20 Fundamental value date

The fundamental value date is the current date, i.e., today. All items are always accessed, read and valued at the current, today´s, value or Daily CPI or other daily rate.

The fundamental value date is the date of the financial report. During hyperinflation financial reports can become meaningless the next day as a result of hyperinflation.

Nicolaas Smith

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