Economic items
are valued or measured whenever economic transactions and events are accounted.
Financial
reporting does not simply report on what took place in the past in nominal historical
cost terms. Accounting is
not just a scorekeeping exercise of what happened in the past. Financial
reporting values everything that happens in the economy on a daily basis.
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 which is also the unstable monetary unit
of account. Economic transactions and events involving these three basic
economic items are valued and 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 balance sheet plus other
financial, management and costing reports.
Accounting
entries are valuations of the economic items (the debit items and the credit
items) accounted.
Financial reporting is the valuing, classifying, recording, summarizing and
reporting of economic transactions and events in an entity in terms of the
three basic economic items measured in an unstable functional currency at all
levels of inflation and deflation. It is the daily valuation and recording of an entity´s economic
activities in terms of an unstable functional currency. Under Constant Item
Purchasing Power Accounting financial reporting deals with economic values on a
daily basis when an entity´s daily economic activities are accounted.
Financial capital
maintenance in units of constant purchasing power (CIPPA) is a real net asset valuation
of an entity in terms of a Daily Consumer Price Index or daily monetized
indexed unit of account, e.g. the Unidad
de Fomento, during low inflation, high inflation and deflation or a daily
rate, for example the US Dollar parallel rate or a Brazilian-style Unidade Real de Valor daily index rate, during
hyperinflation. The real net asset value of an entity is reported in financial
terms by means of valuation of the three basic economic items in terms of IFRS,
excluding the stable measuring unit assumption, implementing financial capital
maintenance in units of constant purchasing power in terms of a daily rate (CIPPA).
Nicolaas Smith
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.
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