Accountants value everything they account

            Accountants value everything they account

            The debate concerning whether value accounting or price-level accounting should prevail is not on point, because in the long run both should prevail.

 Harvey Kapnick, Chairman, Arthur Andersen & Company, “Value Based Accounting – Evolution or Revolution”, Sax Lecture, 1976.

 Accounting is a measurement instrument.

David Mosso, Comment letter, Proposal for a Principles-based Approach to US Standard Setting, 2002, p1.

http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175818119471&blobheader=application%2Fpdf

 Economic items have economic value. Accountants deal with economic items all the time. They deal with economic values when they account economic items and prepare financial reports. Accountants value economic items when they account economic transactions and events. Financial reporting does not simply report on what took place in the past. Accountants are not just scorekeepers of what happened in the past. Accountants value everything they account in the economy.

 The three fundamentally different basic economic items in the economy, namely variable real value non-monetary items, monetary items and constant real value non-monetary items, have economic values expressed in terms of money; i.e. the monetary unit. Accountants account economic transactions and events involving these three basic economic items in an organized manner when they implement the double entry accounting model: journal entries, general ledger accounts, trial balances, cash flow statements, income and expenses in the income statement, assets and liabilities in the balance sheet plus other financial, management and costing reports.

 Accountants value economic items when they account economic activity in the accounting records and prepare financial reports of economic entities based on the double entry accounting model. Accounting entries are valuations of the economic items (the debit items and the credit items) being accounted.

Many accountants still think that accounting is simply a recording exercise during which they merely record past economic activity. That is not correct. Accountants value economic items when they account them. Financial reporting / accounting – under CIPPA –  is, firstly, the automatic maintenance of the constant purchasing power of capital in all entities that at least break even for an indefinite period of time and, secondly, the  provision of continuously updated decision-useful financial information about the reporting entity to capital providers and other users.

 It includes the valuing, recording, classifying, summarizing and reporting of an entity’s economic activity.

Nicolaas Smith

Copyright (c) 2005-2011 Nicolaas J Smith. All rights reserved. No reproduction without permission.

Accountants value everything they account

The debate concerning whether value accounting or price-level accounting should prevail is not on point, because in the long run both should prevail.

Harvey Kapnick, Chairman, Arthur Andersen & Company, “Value Based Accounting – Evolution or Revolution”, Sax Lecture, 1976.

Economic items have economic value. Accountants deal with economic items all the time. They deal with economic values when they account economic items and prepare financial reports. Accountants value economic items when they account economic transactions and events. Financial reporting does not simply report on what took place in the past. Accountants are not just scorekeepers of what happened in the past. Accountants value everything they account in the economy.

The three fundamentally different basic economic items in the economy, namely variable items, monetary items and constant items, have economic values expressed in terms of money; i.e. the functional currency. Accountants account economic transactions involving these three basic economic items in an organized manner when they implement the double entry accounting model: journal entries, general ledger accounts, trial balances, cash flow statements, income and expenses in the income statement, assets and liabilities in the balance sheet plus other financial, management and costing reports.


Accountants value economic items when they account economic activity in the accounting records and prepare financial reports of economic entities based on the double entry accounting model. Accounting entries are valuations of the economic items (the debit items and the credit items) being accounted.

Many accountants still think that accounting is simply a recording exercise during which they merely record past economic activity. That is not correct. Accountants value economic items when they account them. Financial reporting (accounting) is, firstly, the continuous maintenance of the constant purchasing power of capital and secondly the provision of continuously updated decision-useful financial information about the reporting entity to capital providers and other users. It includes the valuing, recording, classifying, summarizing and reporting of an entity’s economic activity.

Copyright (c) 2005-2011 Nicolaas J Smith. All rights reserved. No reproduction without permission.

Accountants value everything they account

Accountants value everything they account


"The debate concerning whether value accounting or price-level accounting should prevail is not on point, because in the long run both should prevail."

Harvey Kapnick, Chairman, Arthur Andersen & Company, “Value Based Accounting – Evolution or Revolution”, Sax Lecture, 1976.

"Accounting is a measurement instrument."

David Mosso, Ex Member of the US Financial Accounting Standards Board

Economic items have economic value. Accountants deal with economic items all the time. They deal with economic values when they account economic items and prepare financial reports. Accountants value economic items when they account economic transactions and events. Financial reporting does not simply report on what took place. Accountants are not just scorekeepers of what happened in the past. Accountants value everything they account in the economy.

Many accountants still think that accounting is just a recording exercise during which they merely record past economic activity. That is not correct. Accountants value economic items when they account them. Accounting is the continuous maintenance of the constant purchasing power of capital and the provision of continuously updated decision-useful financial information about the reporting entity to capital providers and other users. It involves the valuing, recording, classifying, summarizing and reporting of an entity’s economic activity.

Accounting for inflation

In response to a letter to the editor of the Financial Mail, Accounting for Inflation published on 9th May, 2008 in which I stated:

“SA accountants freely destroy real value in the real economy with their assumption that the rand is perfectly stable only for the purpose of accounting constant value items, and have absolutely no concern about the negative impact this has on sustainable economic growth.”

The IASB is dead right that financial capital maintenance can be measured in units of constant purchasing power during low inflation, hyperinflation and deflation. The IASB has my vote.
The statements that HC financial reporting does not destroy wealth and that there is no substance in my suggestion that value destruction would end if SA accountants abandon the stable measuring unit assumption have no substance as can be unequivocally proven in the case of SA banks´ and companies´ shareholders equity values never maintained in SA´s low inflationary economy.

The real values of SA banks´ and companies´ shareholders´ equity are unnecessarily, unknowingly and unintentionally being destroyed by their accountants at a rate equal to the annual rate of inflation when their boards of directors choose to apply the stable measuring unit assumption (one of the two very popular accounting fallacies authorized by the IASB) for an unlimited period of time during indefinite inflation when these entities do not own sufficient fixed assets that are or can be revalued via the Revaluation Reserve to compensate for the real value shortfall in these items under the HCA model.

Copyright © 2005 - 2010 Nicolaas J Smith