IFRS and US GAAP authorised CMUCPP maintains the constant purchasing power of constant real value non-monetary items (e.g. capital, all items in shareholders´ equity, provisions, salaries, wages, pensions, taxes, trade debtors/creditors, etc) in terms of a Daily CPI in entities that at least break even in real value during low and high inflation, hyperinflation and deflation - ceteris paribus. European Accounting Assoc: "Capital maintenance is a competing objective of financial reporting."
IAS 29 Financial Reporting in Hyperinflationary Economies
is not a departure from, but an extension to Historical Cost Accounting.
The only way a country with a hyperinflationary economy can
maintain its variable item and constant item economies relatively stable during
hyperinflation is by continuously measuring all non–monetary items (variable
and constant items) in units of constant purchasing power. The real economy
would still be affected by the stable measuring unit assumption in constant
items never maintained constant at a rate of real value erosion equal to the
annual rate of inflation of the hard currency used for determining the parallel
rate, normally the US Dollar.
The real economy can be maintained relatively stable
during hyperinflation in the local currency monetary unit not by restating Historical
Cost or Current Cost financial statements at the end of the reporting period in
terms of the period–end monthly published CPI to make them ‘more useful’ as
required by IAS 29, but, by applying the daily parallel US Dollar or other hard
currency exchange rate, or – as was done in Brazil during the 30 years of very
high and hyperinflation from 1964 to 1994 – with daily indexation.
Daily indexation is, in principle, better than applying
the daily US Dollar parallel rate. Daily indexation in terms of a
Brazilian-style Unidade Real de Valor
daily index would keep the real economy more stable: the erosion of the real
value of constant items never maintained constant caused by the stable
measuring unit assumption as applied to the US Dollar parallel rate is
eliminated in the formulation of the index value when the CPI is included in
the formula as it was in the case of the URV.
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