Monday, 10 February 2014

Selection of the capital maintenance concept is a choice that is available within the Conceptual Framework

“Par. 14 . The selection of the capital maintenance concept is a choice that is available within the Conceptual Framework that provides a fundamental basis of preparation of financial statements. Paragraph 4.58 of the Conceptual Framework states that “the selection of the appropriate concept of capital by an entity should be based on the needs of the users of its financial statements”. Accordingly, those who support this view argue that the entity is permitted to use the financial capital maintenance concept defined in constant purchasing power units if this concept, among the alternative concepts described in the Conceptual Framework, provides the most useful information to users.

Par. 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. The entity would need to adapt each IFRS for the use under that capital maintenance concept.”

STAFF PAPER Agenda ref 12, 10–11 September 2013 IFRS Interpretations Committee Meeting
Project IAS 29 Financial Reporting in Hyperinflationary Economies
Paper topic Applicability of the concept of financial capital maintenance defined in constant purchasing power units.                          

I fully support the above view. 

Nicolaas Smith

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