Friday, 14 March 2014

Daily indexing will stop your tears forever, Argentina

The Argentinian Accounting Federation sent a proposal to the IASB in 2010 regarding financial reporting in high inflationary economies (available in IFRS 'X'). I amended their proposal in 2012 with IFRS 'X' CAPITAL MAINTENANCE IN UNITS OF CONSTANT PURCHASING POWER. I suggested capital maintenance in units of constant purchasing power in terms of a DAILY INDEX similar to what stabilized the Brazilian economy during high and hyperinflation from 1964 to 1994. Brazilian accountants called it ´correcção monetária`.

My amendment was ignored by both the Argentinian Accounting Federation and the IASB. The IASB at one stage even wanted to throw my amendments in the rubbish bin. Maybe that is where IFRS ´X´is now at the IASB - despite Hans Hoogervorst´s assurances to the contrary.

When I first read, a year or two ago, that the Argentinian government was faking inflation, I knew that they would land up in an economic disaster. 

Now we have this: 

Soaring Prices Fuel Frustrations Among Weary Argentines

IFRS 'X' is still valid today. It will always be valid while there is inflation and deflation. DAILY INDEXING would give Argentina economic stability over a very short period of time. The IASB could REQUIRE it in IAS 29. The Board could encourage it immediately while correcting IAS 29 in a very short time.

Unfortunately the IASB is still in love with historical cost accounting even during high inflation. "The cheque amount is what represents cost" is currently still very forcefully stated by a top IASB member in public when discussing accounting during high inflation which could reach up to 25% per annum. What a joke. 

Watch Argentina and Venezuela to see historical cost accountants destroying two big economies - aided and abetted by the IASB.

Nicolaas Smith 

Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.

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