Cost is a measurement basis under financial capital maintenance in units of constant purchasing power

Cost is a measurement basis under financial capital maintenance in units of constant purchasing power


"Updated Historical Cost to be used under financial capital maintenance in units of constant purchasing power."

Agenda Ref 12, IFRIC meeting September 2013, Appendix B, 2.(b)

Michael Stewart, Director of Implementation Activities at the IASB and Kenichi Yoshimura very unfortunately forgot the above in their submission Applicability of the concept of financial capital maintenance defined in constant purchasing power units.

15. Having made a choice of using the financial capital maintenance concept in constant purchasing power units, the entity would develop accounting policies by referring to an IFRS that addresses a transaction, other event or condition analysed in accordance with paragraph 10 of IAS 8. 

IAS 8 state:

10 In the absence of an IFRS that specifically applies to a transaction, other event or condition, management shall use its judgement in developing and applying an accounting policy that results in information that is:

(a) relevant to the economic decision-making needs of users; and

(b) reliable, in that the financial statements:

(i) represent faithfully the financial position, financial

performance and cash flows of the entity;

(ii) reflect the economic substance of transactions, other events

and conditions, and not merely the legal form;

(iii) are neutral, ie free from bias;

(iv) are prudent; and

(v) are complete in all material respects.

11 In making the judgement described in paragraph 10, management shall refer to, and consider the applicability of, the following sources in

descending order:

(a) the requirements in IFRSs dealing with similar and related issues;

and

(b) the definitions, recognition criteria and measurement concepts

for assets, liabilities, income and expenses in the Framework.

The entity would need to adapt each IFRS for the use under that capital maintenance concept because all IFRSs are written to be applied using nominal monetary units in a non-hyperinflationary situation. 

Michael Stewart and Kenichi Yoshimura clearly lack judgement added to their very clear (self-admitted in the case of Kenichi Yoshimura) lack of understanding of financial capital maintenance in units of constant purchasing power.

Michael Stewart, the Director of Implementation Activities at the IASB, even went so far as to state that financial reporting (accounting) has no effect on the economy. He refuses to publicly state that financial reporting (accounting) affects the economy - something all accountants know. I specifically pointed out to him the lack of such a statement from him - after his previous statement. He still refuses to make that statement. He also refuses to admit that he stated that financial reporting has no effect on the economy. He only admits that "I expressed a view about the effect of financial reporting on the economy." He refuses to repeat exactly what he stated. Michael Stewart is the kind of accountant employed at the IASB who influences decision-making at the IASB.

After my above disagreement with Michael Stewart, the IASB stopped working with me on Project IAS 29 Financial Reporting in Hyperinflationary Economies, Paper topic Applicability of the concept of financial capital maintenance defined in constant purchasing power units even though I am the submitter of this Agenda Item Request to the IASB.

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