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