Understanding
IAS 29 per PricewaterhouseCoopers: Correction 1: Capital Maintenance in Units of Constant Purchasing Power
principles instead of current purchasing power principles
‘Introduction
Why is this guide needed?
IAS 29 is based on current purchasing power principles and
requires financial statements prepared in the currency of a hyperinflationary
economy to be stated in terms of the value of money at the reporting balance sheet
date.’
PricewaterhouseCoopers Understanding IAS 29 2006 P3
PricewaterhouseCoopers Understanding IAS 29 2006 P3
IAS 29 is not based on current purchasing power
principles. IAS 29 contains the IASB´s specific guidelines on how to implement financial
capital maintenance in units of constant purchasing power as authorized in the
Conceptual Framework (2010), Par. 4.59 (a) during hyperinflation. Par. 4.59 (a)
states ‘Financial capital maintenance can
be measured in either nominal monetary units or in units of constant purchasing power.’ Capital
maintenance in units of constant purchasing power is authorized in IFRS at all
levels of inflation and deflation, including during hyperinflation as specifically
guide-lined in IAS 29.
IAS 29 is thus based on capital maintenance in units
of constant purchasing power principles. However, implementing IAS 29 in terms
of the monthly published CPI does not result in the maintenance of the constant
purchasing power of capital during hyperinflation, specifically with respect to
the current year´s profit (eventually retained income, i.e., part of capital).
A part of current year profits is eroded (destroyed) as a result of the
implementation of the monthly CPI (one single price-level change per month)
when the price level changes at least 28 to 31 times per month or even more
often (sometimes twice a day) generally at above 3000 per cent inflation per
annum.
IAS 29 can also have absolutely no positive effect in a hyperinflationary economy. That is what happened in Zimbabwe where IAS 29 was implemented during the last 8 years of hyperinflation. The Zimbabwe economy imploded on 20 November 2008 with full implementation of IAS 29.
Nicolaas Smith
IAS 29 can also have absolutely no positive effect in a hyperinflationary economy. That is what happened in Zimbabwe where IAS 29 was implemented during the last 8 years of hyperinflation. The Zimbabwe economy imploded on 20 November 2008 with full implementation of IAS 29.
Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
No comments:
Post a Comment