Friday, 22 March 2013

Fundamental mistake in IFRIC 7

Dear Mr Hoogervorst,

I further wish to point out to you that there is a fundamental mistake in IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies as follows:

Par 3 Consensus states:

Therefore, in relation to non-monetary items measured at historical cost, the entity’s opening statement of financial position at the beginning of the earliest period presented in the financial statements shall be restated to reflect the effect of inflationfrom the date the assets were acquired and the liabilities were incurred or assumed until the end of the reporting period. For non-monetary items carried in the opening statement of financial position at amounts current at dates other than those of acquisition or incurrence, that restatement shall reflect instead the effect of inflation from the dates those carrying amounts were determined until the end of the reporting period.

Inflation has no effect on the real value of non-monetary items.
‘Purchasing power of non monetary items does not change in spite of variation in national currency value.’
It is the stable measuring unit assumption, and not inflation, that affects the real value of non-monetary items. Inflation only affects the real value of monetary items.

Please change the word inflation in IFRIC 7, Par 3 above to “the stable measuring unit assumption”.

You stated in your reply to me thatIt is important that our staff collaboration approach retains a degree of flexibilityand agility to respond to the circumstances.” I have found that to mean flexibility to ignore facts.

You are free to ignore the above fact too.

Yours sincerely,

Nicolaas Smith

Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.

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