Financial capital maintenance in units of constant purchasing power (CIPPA) which automatically maintains the constant purchasing power of capital constant for an indefinite period of time in all entities that break even in real value during inflation and deflation – ceteris paribus – is not yet generally accepted by companies for the following reasons:
1
The CIPPA due process is not yet complete in 2012; it is an on–going process
although authorization of the principle of financial capital maintenance in
units of constant purchasing power at all levels of inflation and deflation in
IFRS in 1989 was a major milestone.
2
It is still (2012) initially assumed that any price–level accounting
model refers to either (a) the inflation
accounting model authorized in IAS 29 to
be used only during hyperinflation or (b)
to the CPPA inflation accounting model used during the high inflation
1970s and 80s.
3
It is not yet generally understood that the implementation of the
traditional Historical Cost Accounting model – in general – unknowingly,
unintentionally and unnecessarily erodes
real value on a significant scale (hundreds of billions of US Dollars per
annum) in the world´s constant item
economy when the stable measuring unit
assumption is implemented and financial capital maintenance is measured in nominal
monetary units during inflation in entities when the constant purchasing power
of constant items is never maintained.
4
It is not yet generally understood that this massive annual erosion of
existing constant real value in existing constant items never maintained
constant can be stopped by simply selecting the alternative approved in IFRS in
1989.
5
The fallacy that financial
capital maintenance can be measured in nominal monetary units (HCA) was
also approved in IFRS in the original Framework (1989), Par. 104 (a).
6
The HCA model that includes the stable measuring unit assumption is
implemented by most entities world–wide.
7
The fallacy that the erosion
of business profits and invested capital is caused by inflation is still (2012) generally accepted.
8
The cost of the stable measuring unit assumption (the net constant item
loss in constant items not maintained constant over time under HCA) is
mistakenly still (2012) generally accepted to be the same as the cost of
inflation (the net monetary loss from holding a net balance of monetary item
assets over time) and needs to be limited by central banks´ monetary policies
because it is not realized that it is the implementation of the stable
measuring unit assumption and not inflation that is eroding the real value of
constant items never maintained constant.
9
The concept of a constant item with a constant real non-monetary value
to be maintained constant over time by means of financial capital maintenance
in units of constant purchasing power in terms of a daily rate is still a very
new accounting concept in 2012.
Nicolaas Smith
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.
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