Understanding IAS 29 per
PricewaterhouseCoopers: Correction
9: IAS 29 aims to implement Capital Maintenance in Units of Constant
Purchasing Power
‘IAS 29 aims to overcome the limitations of historical cost financial
reporting in hyperinflationary environments.’
PricewaterhouseCoopers
Understanding IAS 29 2006 p3
Correction
IAS 29 does not aim to overcome the limitations of
historical cost financial reporting in hyperinflationary environments. IAS 29
aims to replace financial capital maintenance in nominal monetary units (HCA)
during hyperinflation with capital maintenance in units of constant purchasing
power during hyperinflation.
IAS 29 unfortunately does not succeed in this aim
because it is generally implemented in terms of the monthly published CPI. The
price level changes at least from 28 to 31 times per month (or even more often,
generally above 3000 per cent inflation per annum). However, IAS 29 is
currently being implemented using one single price level change: the month end
CPI.
This means that a part of the real value of current
year profits and a part of the real value of non-monetary receivables treated
as monetary items are eroded (destroyed) in this fashion under IAS 29.
IAS 29 can also have absolutely no positive effect in
an economy during hyperinflation. IAS 29 had absolutely no positive effect
during the last eight years in Zimbabwe´s hyperinflation. Zimbabwe´s economy
imploded on 20 November 2008 with the full implementation of IAS 29.
It is quite easy to stop this from happening: simply copy
what Brazil did during 30 years from 1964 to 1994. Brazil updated some monetary
items and all non-monetary items daily in terms of a government supplied daily
index during those 30 years of very high and hyperinflation.
Nicolaas Smith
Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
No comments:
Post a Comment