IAS 29 made no difference in Zimbabwe

IAS 29 made no difference in Zimbabwe

The implementation of IAS 29 by Zimbabwean listed companies as required by the Zimbabwean Stock Exchange made no difference to the collapse of the Zimbabwean constant item economy during hyperinflationary. Valuing all non–monetary items in restated HC or CC financial statement as required by IAS 29 in terms of the period–end CPI which was published a month or more after the month to which it related when the real value of the Zimbabwe Dollar sometimes halved every day, obviously, made no difference to the collapse of the economy.

Massive increases in the local currency money supply hyper–eroded the real value of only the ZimDollar and ZimDollar monetary items in the Zimbabwean monetary economy during hyperinflation.

Most variable items in Zimbabwe´s variable item economy, especially in the private sector, were valued in terms of the daily unofficial US Dollar parallel rate. The real values of most variable items in the private sector were thus maintained while the unofficial US Dollar parallel rate and finally the Old Mutual Implied Rate (OMIR) were available.

The real values of variable items in the public sector were not maintained in terms of the daily US Dollar parallel rate. The government attempted various periods of price freezes in the private and public sector.

The continued use of the HCA model in the Zimbabwean economy during the financial year unknowingly, unintentionally and unnecessarily eroded Zimbabwe´s constant item economy with the use of the stable measuring unit assumption during hyperinflation, as approved by the IASB and supported by PricewaterhouseCoopers (amongst others). HC financial statements of Zimbabwean companies were then restated in terms of the period–end CPI (while the CPI was still made available in Zimbabwe) to make these restated HC financial statements ‘more useful’. That made no difference to the collapse of the constant item economy.

Brazil rejected the HCA model and the stable measuring unit assumption during 30 years of very high and hyperinflation from 1964 to 1994. Brazil introduced the Historical Cost Accounting model again in 1994. The Brazilian real or non–monetary economy was kept relatively stable with daily indexing of most non–monetary items (variable and constant items) in terms of a daily index supplied by the various governments during that period while they had hyperinflation of up to 2000 per cen per annum in only their monetary unit.  Hyperinflation has no effect on the real value of non–monetary items.

How anyone can use or accept the use of the HCA model during hyperinflation is completely incomprehensible. The use of the HCA model during hyperinflation should specifically be banned by law.

Nicolaas Smith

Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.