Wednesday, 1 August 2012


Monetary items

  1. Measurement in terms of the general price level index.
This requires the calculation and accounting of net monetary losses and gains only as long as the stable measuring unit assumption (HCA) is mistakenly still being applied. It is an absolute fact that the monetary unit of measure is not perfectly stable.

Variable real value non-monetary items

2. Fair value and related bases excluding the stable measuring unit assumpiton as stated in the FASB and IASB list (below) of nine measurement bases.

Constant real value non-monetary items

      3. Units of constant purchasing power.

The following is the FASB and IASB list of basic measurement bases which mainly apply to variable items:

“The Boards agreed to the following set of nine measurement basis candidates:

1. Past entry price

2. Past exit price

3. Modified past amount

4. Current entry price

5. Current exit price

6. Current equilibrium price

7. Value in use

8. Future entry price

9. Future exit price.”

It can be seen from the above FASB and IASB list that neither

(i)                  measurement (of monetary items) in terms of a general price level index nor

(ii)                 measurement (of constant items) in units of constant purchasing power

are considered by either the FASB or the IASB as possible basic measurement bases.

The IASB does, however, require the calculation of net monetary losses and gains only during hyperinflation in terms of IAS 29 Financial Reporting in Hyperinflationary Economies.

The inexplicable omission of these two basic measurement bases is obviously a mistake on the part of the FASB and IASB.

Most salaries and wages and tens of thousands of other items have been and are currently measured in units of constant purchasing power on an annual basis in the world economy during at least the last 100 years.

It is impossible to explain how units of constant purchasing power can be omitted by both the FASB and IASB as a basic measurement basis.

The only possible explanation is to state that to err is human.

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

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