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Sunday, 14 January 2018

IAS 29 urgently needs to be reviewed to require capital maintenance in units of constant purchasing power in terms of the Daily CPI

IAS 29 Financial Reporting in Hyperinflationary Economies requires restatement of Historical Cost financial statements in terms of the monthly CPI. That is why it is ineffective. 

The general price level changes at least 21 times per month in all economies, including a hyperinflationary economy - at least daily. However, in pratice, IAS 29 has been implemented over the last 28 years by restatement of HC financial statements once per month in terms of the monthly published CPI. All items in a hyperinflationary economy have to be updated with every change in the general price level - at least in terms of the Daily CPI - in order to achieve zero hyperinflationary effect like Brazil did so successfully in 1994. 


The best example of IAS 29´s ineffectiveness was it´s 8 years of implementation during Zimbabwe´s hyperinflation with no positive effect. Zimbabwe´s hyperinflationary economy imploded in 2008 with the full implementation of IAS 29 at the time. 


IAS 29 urgently has to be revised to require financial capital maintenance in units of constant purchasing power in terms of the Daily CPI.  

That is the only way hyperinflationary countries would achieve zero monetary effect like Brazil did in 1994 with their very successful Daily Unidade Real de Valor. 


The "restatement" concept in IAS 29 has to be replaced with the "financial capital maintenance in units of constant purchasing power in terms of the Daily CPI" concept which was first authorized in IFRS in April, 1989, the same year IAS 29 was authorized. 


A reviewed and updated IAS 29 has to be a complete departure from Historical Cost Accounting. It has to require the alternative financial capital maintenance concept authorized in the Conceptual Framework in April, 1989, namely financial capital maintenance in units of constant purchasing power in terms of the Daily CPI. 


The Conceptual Framework states: "Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power."


PriceWaterhouseCoopers clearly stated in their publication Understanding IAS 29 and currently still states on their website that the current version of the Standard is not a departure from HCA.



PricewaterhouseCoopers Understanding IAS 29 (2006) p3

Nicolaas Smith Copyright (c) 2005-2018 Nicolaas J Smith. All rights reserved. No reproduction without permission.

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