Applicability of IAS 29 No 5

Applicability of IAS 29 No 5

21 January 2013

List of 16 mistakes and disagreements submitted to the IASB.
 
My concerns are highlighted in yellow.
 
Agenda ref 20  STAFF PAPER 22–23 January 2013

IFRS Interpretations Committee Meeting

Project IAS 29 Financial Reporting in Hyperinflationary Economies

Paper topic Applicability of IAS 29 to financial statements prepared under  the concept of financial capital maintenance in constant purchasing power units

3. This agenda paper is structured as follows:
(a) background information on the issue;
(b) technical analysis;

[1] The Excel hyperinflation example is not included here. 
 
6. The submitter thinks that IAS 29 would not be applicable if the financial  statements are prepared under the concept of financial capital maintenance  defined in terms of constant purchasing power units. This is because all items in  such financial statements could

[2] It is ignored that I clearly showed that all items are always different under the two models in this example.
  
already be stated at the measuring unit current at the end of the reporting period (refer to paragraph 8 of IAS 29). The submitter also insists
  
[3] This is not true: I do not “insist” on anything: You refuse to accept the facts as proven in this example that all the items are always different as they necessarily have to be when they are always stated in terms of different indices. You refuse to accept simple logic. 
 
that financial statements under the CMUCPP are so different from the financial statements prepared under the historical accounting system and current cost accounting system that IAS 29 could not be applied to the financial statements prepared under the CMUCPP model.

7. On the basis of our discussions with the submitter, we understand that major differences between the IAS 29 model and the CMUCPP are:
(a) the scope of monetary items. For example, trade receivables and payables that would be classified as monetary items under IAS 29 could
 
[4] (are)
  
not be classified as monetary items under the CMUCPP. This difference gives rise to a difference in the amount of net monetary gain or loss.

(b) the difference in a general price index

[5] (URV-based Daily Index)
 
referred to when preparing the financial statements.

[5] continued (Any reasonable accountant who reads what is stated in (b) so far would know that all items always have to be different at different indices and may realise that no-one needs to “insist” that the values are different with different indices used as you stated above.)  

Under the CMUCPP, numbers (values) in financial statements are adjusted for changes in a general price index (URV-based Daily Index) even after a reporting date.
 
[6] (Under “Financial capital maintenance ... in units of constant purchasing power” as defined in the CF, Par. 4.59 (a), the stable measuring unit assumption is never implemented. All historical financial statement values are thus always updated in terms of the current index.)    
That is, the numbers (values) in the financial statements as of the reporting date are continuously and automatically updated on a daily basis before and after the reporting date. 

10. Under current IFRS, there is no particular guidance on how to prepare financial  statements stated in constant purchasing power units.

[7] Incorrect: IAS 29 contains guidance on how to prepare financial statements in constant purchasing power units: many paragraphs in IAS 29 contain that guidance: they state which are monetary and non- monetary items, according to IAS 29, and how to measure items in units of constant purchasing power at the measuring unit current at the period-end date, but, IAS 29 does not result in “Financial capital maintenance ... in units of constant purchasing power” as defined in the CF, Par. 4.59 (a) because it is only possible to maintain a constant item constant when its constant real value is updated every time the URV-based Daily Index (or USD daily free-market rate) changes during hyperinflation. Values under IAS 29 are not continuously updated every time the URV-based Daily Index changes. The time variable (interval) should be: every time the URV-based Daily Index changes and not every time the monthly CPI changes. If  IAS 29 were to be changed as such it would become “Financial capital maintenance ... in units of constant purchasing power” as defined in the Conceptual Framework, Par. 4.59 (a). 
 
However, with regard to the scope of IAS 29, paragraph 1 of IAS 29 states that “this standard shall be applied to the financial statements, including the consolidated financial statements, of any entity whose functional currency is the currency of a hyperinflationary economy.” Accordingly, we are of the view that
an entity needs to apply IAS 29 to financial statements prepared in accordance with IFRSs if its functional currency is the currency of a hyperinflationary economy, regardless of the concepts of capital employed by the entity.
 
[8]This statement ignores the fact proven  many times during my collaboration on the agenda item request that all items in financial statements prepared under “Financial capital maintenance ... in units of constant purchasing power” (CF Par. 4.59 (a)) are always stated at the measuring unit current at the end of the reporting period and then further updated to the measuring unit current at the current date and thus cannot be restated when they are already there. 

11. Some may argue that it is not clear whether IAS 29 is applicable in this situation,  because there is no Standard under IFRS that prescribes how to prepare financial  statements under the concept of financial capital maintenance defined in terms of  constant purchasing power units.
  
[9]This validly held view is incorrect: IAS 29 prescribes, but unsuccessfully (updating every time the URV-based Daily Index changes is required - not every time the monthly CPI changes) how to prepare financial statements under the concept of financial capital maintenance defined in terms of constant purchasing power units as described in the previous paragraph.
  
They think that all the requirements under current IFRS are developed on the basis of the assumption that financial statements are stated in nominal monetary units.
 
[10] This validly held view is incorrect: IAS 29 unsuccessfully prescribes the model authorised in the CF, Par. 4.59 (a). See above.
 
12. However, in the absence of an IFRS that specifically applies to a transaction, other event or condition, paragraph 11 of IAS 8 requires an entity to develop and apply an accounting policy by referring to the requirements in IFRSs dealing with similar and related issues. In our view, the requirements in IAS 8 would result in the entity applying IAS 29 to financial statements under the concept of financial capital maintenance defined in terms of constant purchasing power units if the conditions in IAS 29 are met.
  
[11] IAS 29 requires the restatement of only HC and CC financial statements and financial statements prepared under the concept of financial capital maintenance defined in terms of constant purchasing power units are not HC or CC financial statements and IAS 29 would thus logically not be required. 
 
13. If financial statements are stated in constant purchasing power units, the entity may conclude that all or part of ‘restatements’of the financial statements under the requirements in IAS 29 are not necessary.
 
 [12] This is not correct. Financial statements stated in constant purchasing power units are not based on HC or CC. IAS 29 is only required for these two models.    
You stated in your email dated 3 January 2013    
‘ I thought that the new language of agenda request “IAS 29 is not required during hyperinflation when an entity implements CMUCPP because this model is not a HCA model and only HC or CC financial statements can be restated as required in IAS 29” really summarises that point.’
  
This is because the accounting model under IAS 29 is generally viewed as one of the models used in financial statements stated in constant purchasing power units.
  
[13]   
[A] You thus agree what I state above that IAS 29 prescribes how to prepare financial statements under “Financial capital maintenance ... in units of constant purchasing power,” as defined in the CF, Par. 4.59 (a). HC and CC financial statements are restated during hyperinflation in terms of IAS 29 because it is required in IFRS and countries in hyperinflation implement it for that reason, but with complete failure as comprehensively proven in Zimbabwe. No-one can deny that and a specific review is not required to prove that IAS 29 had no positive effect in the Zimbabwe economy in this respect during hyperinflation. IAS 29´s implementation in Zimbabwe completely proved that the implementation of IAS 29 does not result in “Financial capital maintenance ... in units of constant purchasing power” as defined in the CF, Par. 4.59 (a).    
[B] If IAS 29 were to be changed to require financial capital maintenance ... in units of constant purchasing power as defined in the CF, Par. 4.59 (a) in terms of every change in a URV-based Daily Index then the entity (or a country in hyperinflation implementing this model) would depart from HCA as from the moment this model is implemented. IAS 29 would not be required after that because there would be no HC or CC based financial statements to restate in such a hyperinflationary economy. 
 
In this regard, figures for all, or some, financial information might not be changed even after the application of the requirements in IAS 29. However, we think that this does not mean that IAS 29 is not required under current IFRS.
  
[14] It is impossible to restate items when they are all already at the measuring unit current at the end of the reporting period and always updated to the current date.
  
14. Consequently, under current IFRS, an entity in a hyperinflationary economy would need to apply the requirements in IAS 29 even if a concept of financial capital maintenance defined in terms of constant purchasing power units, including the CMUCPP, is employed.
 
[15] Financial statements prepared under “Financial capital maintenance ... in units of constant purchasing power” as defined in the CF, Par. 4.59 (a) are not based on HC or CC and only HC or CC financial statement can be restated under IAS 29.
  
16. However, under current IFRS, there is no authoritative guidance on how to prepare financial statements under the concept of financial capital maintenance defined in terms of constant purchasing power units.

[16] IAS 29 provides such guidance, but it does not have a positive effect in the economy as proven in Zimbabwe and as explained above for the reasons explained above.  

Further comments:  
I am convinced that what is stated in this document will also simply be ignored by the IASB as 90% of what I stated in many emails and in two conference calls were ignored.  
This work is a waste time until the IASB develops a model where the IASB can be stopped from ignoring contributions at will with no agreement with the submitter. The IASB has to agree beforehand with the submitter what the rules are that give the IASB the right to ignore contributions / facts / proofs, etc.   It must be agreed beforehand when facts, etc. will be ignored. All disagreements with the submitter must be stated. A document like this document, stating 100% of the submitters disagreements, and then ignored has zero value.  
All the IASB does with this document is state, yes, the submitters concerns were noted, and then ignore them. This does not work.  This has to be stopped. That is my opinion.  
This work is about helping populations in hyperinflationary countries stabilizing their economies overnight with a free IFRS. No-one at the IASB understands that. I wonder if anyone at the IASB actually cares about that.

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