Third prize for The Silliest Statement Regarding Accounting in 2013-to-date

Third Prize for The Silliest Statement Regarding Accounting in 2013-to-date is awarded to Michael Stewart, Director of Implementation Activities at the International Accounting Standards Board for his statement that "Financial reporting has NO EFFECT on the economy" on 8 January 2013 in London.

First Prize: IASB STAFF for the statement 

"23. Consequently, we are of the view that IFRSs PROHIBIT an entity from preparing its financial statements under the concept of financial capital maintenance defined in constant purchasing power units unless the entity falls within the scope of IAS 29."

Second Prize: PROF. STEVE HANKE

Second prize goes to Prof. Steve Hanke for the following statement:

"Hyperinflation begins when a country experiences an inflation rate of greater than 50% percent per month — which comes out to about 13,000% per year."

IAS 29 Financial Reporting in Hyperinflationary Economies, Par. 3 states:

"Hyperinflation is indicated by characteristics of the economic environment of a country which include, but are not limited to, the following:

(e) the cumulative inflation rate over three years is approaching, or exceeds, 100%."


These awards will only be finalised on 1 January 2014.

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

Official and parallel rate generally unify at the parallel rate

The official and real (often the parallel) exchange rate with the US Dollar generally unify at the parallel rate. This is now happening in Cuba. Eventually it will also happen in Venezuela and Belarus.

Cuba to scrap dual-currency system (BBC)

Nicolaas Smith 

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

IAS 29 Financial Reporting in Hyperinflationary Economies—Applicability of the concept of financial capital maintenance defined in terms of constant purchasing power units

Interpretations Committee tentative agenda decision 

The Interpretations Committee reviewed the following matter and tentatively decided that it should not be added to the Interpretations Committee's agenda. This tentative decision, including recommended reasons for not adding the items to the Interpretations Committee's agenda, will be reconsidered at the Interpretations Committee meeting in January 2014. 

Interested parties who disagree with the proposed reasons, or believe that the explanations may contribute to divergent practices, are encouraged to email those concerns by 20 November 2013 to ifric@ifrs.org. Correspondence will be placed on the public record unless the writer requests confidentiality, supported by good reason, such as commercial confidence. 

IAS 29 Financial Reporting in Hyperinflationary Economies—Applicability of the concept of financial capital maintenance defined in terms of constant purchasing power units 

The Interpretations Committee considered the following two questions: 

a. whether an entity is permitted to use the financial capital maintenance concept defined in terms of constant purchasing power units that is described in the Conceptual Framework when the entity's functional currency is not the currency of a hyperinflationary economy as described in IAS 29 Financial 
Reporting in Hyperinflationary Economies; and 

b. if such use is permitted, whether the entity needs to apply IAS 29 to its financial statements prepared under a specific model of that concept of financial capital maintenance when it falls within the scope of 
IAS 29. 

The Interpretations Committee observed that the guidance in the Conceptual Framework is written to assist the IASB in the development of Standards and that it is also used in the development of an accounting policy only when no IFRSs specifically apply to a particular transaction, other event or condition and no IFRSs deal with similar and related issues. Consequently the guidance in the Conceptual Framework relating to the use of a particular capital maintenance concept cannot be used to override the requirements of individual IFRSs. An entity is not permitted to apply a concept of capital maintenance that conflicts with the existing requirements in a particular IFRS, when applying that IFRS. 

In addition, the Interpretations Committee noted that the results of the outreach indicate that these issues are not widespread. For this reason the Interpretations Committee [decided] not to add these issues to its 
agenda. 

The IASB staff´s guidance to the IASB Interpretations Committee was as follows:

23. Consequently, we are of the view that IFRSs PROHIBIT an entity from preparing its financial statements under the concept of financial capital maintenance defined in constant purchasing power units unless the entity falls within the scope of IAS 29.

STAFF PAPER Agenda ref 12 PROJECT IAS 29 Financial Reporting in Hyperinflationary Economies PAPER TOPIC Applicability of the concept of financial capital maintenance defined in constant purchasing power units

The above guidance earned the IASB Staff this award.

Congratulations to Shiller, Fama and Hansen for sharing the 2013 Nobel Prize in Economic Sciences

Eugene F. Fama, Robert J. Shiller and Lars Peter Hansen shared the 2013 Nobel Prize in Economic Sciences for their research on how the market prices of assets such as stocks move. (Bloomberg)

Robert Shiller has also done very important research regarding government capital inflation-indexed bonds. These bonds are inflation-adjusted daily in terms of a country specific Daily CPI. A Daily CPI is a 2-, 3- or 4-month lagged, daily interpolation of the monthly published CPI. 


These government capital inflation-indexed bonds are currently the principle means of maintaining the real value of monetary items constant over time during inflation and deflation in the USD 2.4 trillion (2013) global market for these sovereign bonds.

The Daily CPI is used as the Daily Index under Capital Maintenance in Units of Constant Purchasing Power during low and high inflation and deflation.

The Daily CPI is always available in advance. It can be available up to a month and a half in advance. There are never any surprises with the Daily CPI. The Daily CPI is daily inflation always known in advance.

The use of the Daily CPI was suggested to the IASB to be used in the future IFRS regarding Financial Reporting in High Inflationary Economies.

Inflation-indexing all monetary items would remove the total effect of inflation (not actual inflation) from the entire economy. Inflation only affects the real value of monetary items. Inflation has no effect on the real value of non-monetary items. The same holds true for deflation. 

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

Accounting and Business Research Special Issue Call for Papers: The Conceptual Framework

Accounting and Business Research Special Issue Call for Papers 

The Conceptual Framework

According to the IASB financial reporting has NO EFFECT on the economy

Financial reporting ALWAYS AFFECTS the economy since the economy is made up of economic entities and economic items and an entity has to choose an accounting model which is determined by the capital maintenance concept and measurement bases chosen as per the Conceptual Framework.

Most entities choose the financial capital maintenance in nominal monetary units (Historical Cost) concept.

Both IFRS and US GAAP also authorise capital maintenance in units of constant purchasing power at all levels of inflation and deflation.

The IASB staff, under the direction of Michael Stewart, are currently guiding the IASB Interpretations Commitee to ban financial capital maintenance in units of constant purchasing power during low and high inflation and deflation.

Accounting is a measurement instrument according to David Mosso.

IASB view

According to the IASB "financial reporting has NO EFFECT on the economy" as stated by Michael Stewart, Director of Implementation Activities at the IASB, on 8 January 2013 in London.


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

Difference between gaap and GAAP

GAAP

Generally Accepted Accounting Principles (GAAP) are fiat-based code-law criteria.

Gaap

Generally accepted accounting principles (gaap) are market-based common-law criteria, under which individuals are held to widely accepted standards of behavior.


To what extent are the accounting standards promulgated by the FASB a codification of what constitutes generally accepted accounting principles ( a market-based common-law criterion, under which individuals are held to widely accepted standards of behavior ) as distinct from Generally Accepted Accounting Principles ( a fiat-based code-law criterion) ? 

Ball R 2008 What is the Actual Economic Role of Financial Reporting? Accounting Horizons, Vol 22, No 4, p4

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

CMUCPP awards for the silliest statements about accounting for 2013-to-date.

First Prize: IASB STAFF


The CMUCPP award for the silliest statement about accounting for 2013-to-date is hereby awarded to the IASB Staff for the following statement:

23. Consequently, we are of the view that IFRSs PROHIBIT an entity from preparing its financial statements under the concept of financial capital maintenance defined in constant purchasing power units unless the entity falls within the scope of IAS 29.

STAFF PAPER Agenda ref 12 PROJECT IAS 29 Financial Reporting in Hyperinflationary Economies PAPER TOPIC Applicability of the concept of financial capital maintenance defined in constant purchasing power units

IASB Staff members are in a very silly way attempting to ban financial capital maintenance in units of constant purchasing power (DAILY indexing or DAILY measurement in units of constant purchasing power) during low and high inflation and deflation when it is, in fact, authorised at all levels of inflation and deflation in the Conceptual Framework (2010), Par. 4.59 (a) which states: 

"Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power."

The IASB Staff members demonstrate a shocking lack of sound judgement and common sense - two of the most important characteristics required for working at the IASB (although it certainly does not seem like that with Michael Stewart - a senior IASB director - even having gone so far as to state on 8 January 2013 in London that "financial reporting has no effect on the economy").

Financial Capital Maintenance in Units of Constant Purchasing Power (indexing or measurement in units of constant purchasing power) is a generally accepted accounting practice (GAAP) at all levels of inflation and deflation. Also see US FASB Concepts Statement Nº 6. The most common embodiment is the practice of measuring salaries, wages, rentals, etc. in units of constant purchasing power on an annual basis (although these items are then paid on a monthly basis during the financial year again implementing the stable measuring unit assumption: they are paid in fixed nominal monthly payments) as well as inflation-indexing monetary items, e.g., sovereign capital inflation-adjusted bonds (more than USD 2.4 trillion world wide) on a daily basis under Historical Cost Accounting. HCA - which the IASB staff state is the sole target of current IFRS excluding IAS 29 - includes various other measurement bases besides measurement in nominal monetary units (see the Conceptual Framework) which applies the stable measuring unit assumption under which it is mistakenly assumed that the monetary unit of account is perfectly stable over time during low and high inflation and deflation.

Each measurement basis (implemented under HCA) results in a proportional financial capital maintenance (of net equity) in terms of that particular measurement basis: in units of constant purchasing or nominal monetary units or whatever - depending on the measurement basis for that particular (never quantified under HCA) portion of epuity. Current (2013) IASB staff find it very difficult to grasp and understand these type of concepts. Current IASB staff operate on the "monekey see, monkey do" basis: when the words are written in IFRS, then the concept is acceptable; when the words are not written in IFRS, then it is not acceptable: no judgement or common sense required.

While we have inflation and deflation entities will instinctively index some very sensitive items (e.g., salaries, wages, rents, etc.): the invisible hand of self-interest. To try and deny it with a silly IASB staff recommendation to the IASB will eventually prove futile: self-interest will never be eliminated - in the long run. Entities are not blind to the stable measuring unit assumption (in the measurement of constant real value non-monetary items) and inflation/deflation (in the measurement of monetary items) and will - in the long run - not ignore their own self-interest.


Second Prize: PROF. STEVE HANKE


Second prize goes to Prof. Steve Hanke for the following statement:

"Hyperinflation begins when a country experiences an inflation rate of greater than 50% percent per month — which comes out to about 13,000% per year."

IAS 29 Financial Reporting in Hyperinflationary Economies, Par. 3 states:

"Hyperinflation is indicated by characteristics of the economic environment of a country which include, but are not limited to, the following:

(e) the cumulative inflation rate over three years is approaching, or exceeds, 100%."

Prof. Hanke´s definition of hyperinflation is just nonsense.

These awards will only be finalised on 1 January 2014.

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

Unconditional Cash Transfer

From Caracas Chronicles:

extorres says:

October 7, 2013 at 10:15 am

Nicolaas Smith,

Juan’s post’s “free cash” is very different to UCT. Start with a country that has no oil, nor other natural resource. Its government must fulfill its duties, limited by income from taxation. The government’s incentive is to maximize its people’s success because that is what maximizes its own income from taxation, which, in turn, maximizes what it can do to maximize its people’s success, which is what keeps people voting for its stay in power. Now let’s compare the two scenarios: A) The free cash to which Juan is referring, and B) UCT to which I refer.

A) The government now gets two incomes, oil money and taxation money. Suddenly the government’s incentive is no longer to maximize taxation money because it is so much easier and more than sufficient to maximize oil income. Whether its people fare well or badly becomes more irrelevant the more money it gets from oil. The government uses the oil money to reward submission and loyalty while punishing dissent.

B) The government only gets a single income, taxation money, so the incentives remain as in a healthy, non oil country. The difference is that now the people have a bonus income which makes it even easier on the government since it has to worry that much less on poverty alleviation programs and can focus on maximizing its people’s success. The government does not have use of the money to reward loyalty and punish dissent.

You see, NS, the key is in the *unconditionality*. That requirement in the UCT proposal is what does not allow the cash to be used in the faulty way to which Juan is pointing in his post.

You were criticizing some time ago about people not considering your DI proposal as much as you think they should. The arguments you used apply to your not considering UCT as much as you should. Remember, whichever proposal is endorsed, right now we need one that not only works, but that it wins votes and that it cannot be countered. UCT is the one to best fit the bill.

By the way, you really need to drill it in: There is no such thing as a free lunch; it comes from somewhere, and it’s paid for.

–

Reply

• Nicolaas Smith says:

  October 7, 2013 at 1:47 pm

  Extorres, I read the 2007 post “Torres in Bethlehem”: it does not explain UCT in detail. Where can I find a detailed explanation of UCT?

  (My capitalist mindset prejudice me towards the idea of UCT: l automatically think it would be fundamentally flawed because of the “crazy” cash transfer idea. Cash transfer just sounds very silly to me.) [This is just confidential between you and me, of course. :-) ]

  “Torres in Bethlehem” showed me that Venezuela is a freak country and you are a freak society.You are not a normal economy and not a normal society. Oil is certainly the devil´s excrement to you. I have a feeling that UCT is obviously your attempt to normalise Venezuelan society and its economy. Cash transfer just sounds fundamentally wrong. Something for nothing never works.

  Venezuela is ultimately lucky: oil resources have to come to an end some or other time in the future. Then you will spontaneously become a normal society and a normal economy. The change-over will obviously be very traumatic if you do not prepare for it. Current signs are that you are not preparing for it. The end of oil is still far away for you. The sooner the end of oil revenue the better for Venezuela. In the mean time you have the misfortune that clowns can run your country because … (I can not state the obvious).

  Reply
  • Andersen says:

    October 7, 2013 at 7:03 pm

    You won’t find a lot of people agreeing with you, but quite simply you stated the truth. Venezuela is a freak country with a freak society. Everybody knows that, except Venezuelans, the people who against all odds succeeded in turning gold into crap.

    Reply
  • extorres says:

    October 7, 2013 at 10:14 pm

    Nicolaas Smith,

    The proposal you hear me describe is part of a multipart proposal with which I came up for Venezuela. I presented it publicly in Caracas for the first time back in 1996. I’ve tweaked some aspects since then, mostly as a result of the many discussions throughout which the details are sprinkled. I have yet to write a single, all encompassing version. Caracas Chronicles took several years to finally give the idea any traction with the milestone post that you already read,http://caracaschronicles.blogspot.ca/2007/07/torres-in-bethlehem.html .

    Other posts in CC touching on the proposal or a related matter:
    http://caracaschronicles.com/2013/01/28/the-bandwagon-is-getting-crowded/
    http://caracaschronicles.com/2013/01/31/the-crowded-bandwagon-cont/
    http://caracaschronicles.com/2011/03/23/the-targetting-vs-universality-debate/

    Links outside of CC that are well related:
    http://www.cgdev.org/publication/oil-cash-wont-work-here-ten-common-objections
    http://www.ted.com/talks/andrew_mcafee_what_will_future_jobs_look_like.html
    
    http://opinionator.blogs.nytimes.com/2013/08/28/the-benefits-of-cash-without-conditions/?_r=1
    http://elsa.berkeley.edu/~emiguel/pdfs/BostonGlobe_2010-07-16.pdf

    By the way, I think you misattribute the source of your rejection to this idea. It can’t be your capitalistic mindset for it is mainly capitalists, myself included, that support it. In fact, how capitalistic can you get when the game of Monopoly gives free cash every time you pass Go? Since the difference with that game and life is that we cannot accept people being left out of play in life, then the tweak to make Monopoly like this proposal is to give cash on each turn, not just when passing Go. This way, every player would have enough to continue playing indefinitely. Nothing going against capitalism there.

    You are correct that the freakiness is what got me to come up it the idea, but after open-mindedly analyzing it as a system, it turns out that the idea is fundamentally sound for any country. Note how the TED talk McAfee video talks about guaranteed income. That’s the growing global thinking.

    Your thinking that this proposal is about “something for nothing” is incorrect. Again, there are no free lunches. There is never a something for nothing. But even simpler than that, you have to look at the alternative. If a little money for nothing to someone is such a repulsive idea to you, what makes you think giving a boatload of money for nothing to someone is any better? All the ills that you envision from giving shares of money to all citizens are centralized when you give the total of the money to the government. But looking at the nothing, what exactly is it that we can expect from government when we give it oil money and how does that compare with what we could expect from the citizens? Well, what I would expect from the citizens is that each citizen spend the money in a way that is most beneficial to himself, at least beneficial in how each citizen perceives it. This spending would help the consumer market considerably, while retaining the incentives of a healthy, non oil nation, rather than the petrostate disaster that giving the oil money to the government achieves. Besides, next time you try to convince anyone that giving money for nothing in exchange never works, remember all the positive results cash distribution is having worldwide.

    I disagree that the sooner the oil ends the better for Venezuela. If UCT is implemented, all Venezuelans will be better off, and the longer that lasts, the better for Venezuela. Did I forget to mention UCT wins votes?

    –

    Reply
    • Nicolaas Smith says:

      October 8, 2013 at 1:01 am

      Extorres,

      Thank you for all the links. This is an important subject, the detail of which I am not familiar with. So, I will read them carefully.

      Smith´s division of labour immediately springs to mind when I think about how this all fits together because I have a gut feeling that in the end you and I will agree on fundamentals.

      I look forward to continuing our very enjoyable conversation.

      Reply
    • Nicolaas Smith says:

      October 9, 2013 at 5:46 pm

      Extorres,

      I have read all the articles and I have listened to all the videos you listed above. I now have a basic idea of what Unconditional Cash Transfer is. That does not make me an expert on the subject. You are the expert on UCT. I am an expert in Daily Indexing. Division of labour between you and I – as Adam Smith stated – is a basic building block of creating wealth.

      I support your idea of UCT for Venezuela. You know the details.

      Daily Indexing does not purport to deal with any political or social or socio-economic aspect of the petro-state or the state-citizen relationship or direct resource allocation or anything like that.

      Daily Indexing is simply a measurement basis during inflation and deflation for

      daily inflation-indexing [1] monetary items – monetary loans, bonds, etc. in terms of the Daily Index – and

      measuring [2] constant real value non-monetary items – e.g., salaries, wages, rents, interest, capital, reserves, trade debtors, trade creditors, taxes, taxes payable, taxes receivable, etc. in units of constant purchasing power in terms of the Daily Index and

      updating the third fundamental economic item, [3] variable real value non-monetary items (e.g. property, plant, equipment, finished goods, raw material, etc.) in terms of the Daily Index.

      It so happens that when you measure the above items as stated in a double entry accounting model, namely Capital Maintenance in Units of Constant Purchasing Power (for every debit there is a corresponding credit), you stabilise the non-monetary economy. This ONLY happens when you apply a DAILY Index, actually an index that follows ALL changes in the general price level. From about 3000% inflation per annum, you would have some days on which the price level would change more than once a day. The Index you use has to follow ALL changes in the general price level – at least daily.

      When you inflation-index ALL monetary items at least DAILY you remove the EFFECT of inflation or deflation – not actual inflation or deflation. It will be AS IF there is no inflation or deflation while you actually still have inflation or deflation. This is easy to see in capital inflation-indexed government bonds. I believe they do exist in Venezuela. These Venezuelan capital inflation-adjusted sovereign bonds are tightly held by major banks in Venezuela according to Miguel Octavio.

      Daily Indexing can be used by any political model. It would have the same stabilising effect when it is properly implemented. The sound characteristics of Daily Indexing is inextricably built into the model. Daily Indexing does nothing directly to stop inflation or deflation. It only removes the actual real EFFECT of inflation or deflation.

      Dagoberto Salazar stated in CC:

      The former paragraph takes me to one of the drawbacks of TP: inflation. An undervalued currency and a surplus in money supply will certainly spur inflation. But let’s face it: we already have one of the worst inflation rates in the world, so TP won’t make things worse.

      Daily Indexing would remove the EFFECT inflation. See above. It would be AS IF there is no inflation.
      
      Over the medium term the stabilising effect of DAILY INDEXING would lead to low inflation. Copying Brazil´s Real Plan would mean that Daily Indexing would kill hyperinflation OVERNIGHT at no cost. But, you have to copy the Real Plan exactly. It was implemented over 3o days from 1 June 1994 to 30 June 1994 in Brazil. Easy to copy.
      
      It needs ONE other essential item without which it would not be possible to implement it in Venezuela: GOOD GOVERNANCE.
      
      Dagoberto Salazar stated:
      
      Then, at the end of each quarter (let’s say we are in the second quarter, or 2Q) the government will compute the total gross oil income from the previous quarter (1Q), and will divide it by the number of Venezuelans that were alive for the full quarter, and the number of days in that quarter. People that died or were born (or naturalized) during 1Q will not get their quarter share. Simple enough. Transparent enough.
      
      Then, the government will deposit the corresponding quarter share, in Bolivars, into each active account. The one-quarter delay will allow for updates in the database of living Venezuelans, and will keep the work manageable for a relatively small bureaucracy.
      
      Currently you have something like 3% inflation per month in Venezuela. A one quarter delay with nominal Historical Cost values (not measured in units of constant purchasing power in terms of a Daily Index) would mean that everyone would lose real value in their UCT receipts at an annualised rate of something like 45% per annum -your rate of hyperinflation. Under Daily Indexing the UCT values would change daily in nominal values but stay the same in real values. You need Daily Indexing.

      This applies to everything else Dagoberto stated in /day values. Under HCA they will stay nominal and lose real value at a rate of 45% per annum. Under DI they would change daily in nominal value and stay the same in real value.

      So, Extorres, I agree with UCT, but, you need to do it under Daily Indexation.
      
      If you would help me to get the International Accounting Standards Board to change IAS 29 Financial Reporting in Hyperinflationary Economies which Venezuelan companies have been implementing in terms of the IASB´s mistaken requirement of the monthly CPI since 2009, to REQUIRE Daily Indexing, then only the Venezuelan non-monetary economy would strongly move towards stabilisation as a result of an International Financial Reporting Standard without your government being involved. It would do nothing to hyperinflation in Venezuela over the short term.
      
      I described above what you have to do to stop hyperinflation overnight in Venezuela at no cost, but, with the requirement of GOOD GOVERNANCE.

      Reply
      • Nicolaas Smith says:

        October 9, 2013 at 6:03 pm

        One very, very scary aspect of the current IAS 29 – which requires the use of the MONTHLY CPI – is the fact that it had absolutely NO POSITIVE EFFECT during the eight years it was implemented at the end of Zimbabwe´s hyperinflation. The same will happen in Venezuela with a severe increase in hyperinflation. Daily Indexing has to be REQUIRED in IAS 29 to fix it. The IASB does not yet understand this. They and the people they consult have no experience of hyperinflation. It may take them another 10 to 20 years to understand it. Actual direct pressure from Venezuelan accountants or anyone in Venezuela would make a big difference.
        
        

Prof. Steve Hanke, Your definition of hyperinflation is just nonsense.

Prof. Steve Hanke stated:

"Hyperinflation begins when a country experiences an inflation rate of greater than 50% percent per month — which comes out to about 13,000% per year. Although it experienced elevated inflation around the time of the Revolution and the Civil War, the United States has never passed this magic mark. At present, the U.S. inflation rate, measured by the consumer price index (CPI), is less than 2% per year. So, to say that the U.S. is on its way to hyperinflation is just nonsense."

IAS 29 Financial Reporting in Hyperinflationary Economies, Par. 3 states:

"Hyperinflation is indicated by characteristics of the economic environment of a country which include, but are not limited to, the following:

(a) the general population prefers to keep its wealth in non-monetary assets
or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power;

(b) the general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that currency;

(c) sales and purchases on credit take place at prices that compensate for
the expected loss of purchasing power during the credit period, even if the period is short;

(d) interest rates, wages and prices are linked to a price index; and

(e) the cumulative inflation rate over three years is approaching, or exceeds, 100%."

Millions of accountants worldwide, including those in American multinationals with subsidiaries in a hyperinflationary economy like Venezuela, have been following the International Accounting Standard Board´s definition since 1989 when IAS 29 was authorised.

I am 100% sure that the US Financial Accounting Standards Board, the Federal Reserve Bank, the SEC and the US Government would never wait till the US has reached Prof. Hanke´s "magic" threshold of 13 000 percent inflation per annum before requiring all American companies to implement Capital Maintenance in Units of Constant Purchasing Power (which is required in IAS 29) in terms of the US Daily Reference CPI-Us. 

Prof. Hanke steadfastly refuses to follow the generally accepted definition of hyperinflation. He follows Phillip Cagan´s outdated definition.



Prof. Hanke: Your definition of hyperinflation is just nonsense. 

Join the world and accept the IASB´s definition.



Nicolaas Smith 

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

Prof. Steve Hanke, Your definition of hyperinflation is just nonsense.http://t.co/OlEg35q3gg @steve_hanke
— Nicolaas Smith (@NicolaasSmith) October 6, 2013

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I would not follow the South African Institute of Chartered Accountants even if you paid me.
— Nicolaas Smith (@NicolaasSmith) October 6, 2013

Hanke got a fright when I pointed to him that daily inflation-indexing all monetary items removes the effect of inflation.
— Nicolaas Smith (@NicolaasSmith) October 6, 2013

Prof Hanke deleted me from his email list thus I have to follow him.
— Nicolaas Smith (@NicolaasSmith) October 6, 2013

I am only following 1 of the 2 acc standard setters who wish to ignore me. SAICA is in a league of their own in banning accounting research.
— Nicolaas Smith (@NicolaasSmith) October 6, 2013

Nicolaas Smith

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

Financial reporting and financial graphs are generally misleading

Financial reporting and financial graphs are generally misleading because of

1.The use of Historical Cost Accounting, i.e., the use of the stable measuring unit assumption during inflation and deflation:

(a) not inflation-indexing monetary items in terms of a Daily Index and

(b) not measuring constant real value non-monetary items in units of constant purchasing power in terms of a Daily Index.

2. Natural scale graphs, i.e., not presenting graphs in semi-log scale.

This may take another 200 years to correct.

Nicolaas Smith

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