CIPPA update: June 2011

CIPPA update: June 2011

The proposal for publishing the book "Constant Item Purchasing Power Accounting" is with a publisher in SA for more than two months by now. I think this editor is seriously looking at publishing the book. The editor asked me for SA and overseas reviewers. I fortunately managed to get David Mosso to read a 10 page abstract of the book and to agree to write a review for the publisher. David Mosso is almost the US equivalent of Sir David Tweedie, the chairman of the IASB. David Mosso was one of the three dissenting votes with US FAS 89 which made measurement in units of constant purchasing power voluntary for US companies. He and the other two dissenting votes wanted it to be compulsary. He stated in FAS 89 that dealing with the effect of "inflation" in accounting "is the most important item the US FASB will deal with this century." He now agrees that it is not inflation but the stable measuring unit assumption that is doing the damage. His remarks to me after reading the abstract was "Good work" and he agreed to write the review for the publisher.

I am absolutely sure that financail capital maintenance in units of constant purchasing power (CIPPA) will eventually prevail over financial capital maintenance in nominal monetary units (HCA) which is - in fact - a fallacy since it is impossible to maintain the constant purchasing power of capital constant with financial capital maintenance in nominal monetary untis - per se - during inflation and deflation.

Both financial capital maintenance in nominal monetary units (traditional HCA) and in units of constant purchasing power (CIPPA) have been authorized in IFRS in the original Framework (1989), Par 104 (a).

The reason capital maintenance in units of constant purchasing power never went ahead was because non-monetary items were not yet split in variable and constant items in 1986. I identified the split in 2005 and it was peer reviewed (three times) and published in SAICA´s journal Accountancy SA in 2007. (see link on the right).

What is missing now is for the due process of CIPPA to be completed. IFRS authorization in 1989 was only the start: a very important start. Due process for CIPPA to be completed requires peer review, publication, discussion, practical implementation, software updates, education, staff training, etc.

A lot of that is still to come.

IFRS authorization was a very important first step. The IFRS Foundation (IASB) has done its part brilliantly in 1989.

The split of non-monetary items in variable and constant items enabled the completion of the constant item purchasing power accounting (CIPPA) model.

The publication of the book will be an important third step.

Then practical implementation.

Education, adaptation of accounting software packages, development of auditing of CIPPA, etc, etc will then follow.

Nicolaas Smith

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