Variable items exist independently of how SA accountants value them

Variable items are non-monetary items with variable real values over time.

Measurement is the process of determining the monetary amounts at which variable items are to be accounted/recognised and carried in the financial reports. This involves the selection of a particular basis of measurement. SA accountants value variable items in terms of IFRS or SA GAAP.

Variable items in the SA non-monetary or real economy are valued at, for example, fair value or the lower of cost and net realizable value or recoverable value or market value or present value in terms of IFRS or SA GAAP. “Listed companies use IFRS and the unlisted companies could use either IFRS or Statements of GAAP.”

SA accountants value variable items correctly in terms of IFRS or SA GAAP at the financial report date – excluding those variable items valued at original nominal Historical Cost when that original date is not the financial report date on a primary valuation basis. The fundamental real values of variable items exist independently of being valued at their original nominal HC values after the original date they came about or were acquired by the entity. Valuing a variable item at its original nominal HC during its lifetime does not destroy its real value because it would be valued at its current market value whenever it is finally exchanged or sold or disposed of in the future.

All items in financial statements - monetary, variable and constant items - were valued at Historical Cost before there were any GAAPs and IFRS, since money – the monetary unit of account – was generally assumed to be stable in real value over time: the infamous stable measuring unit assumption. Today, SA accountants maintain this very destructive and very economically destabilizing assumption only for the valuation of the majority of income statement items (excluding salaries, wages, rents, etc which SA accountants generally value in units of constant purchasing power) and all balance sheet constant items during low inflation and deflation.

SA accountants implement the HC model when they choose to measure financial capital maintenance in nominal monetary units per se (which is a fallacy during inflation and deflation) in terms of the IASB´s Framework, Par 104 (a). They implement their very destructive stable measuring unit assumption. In so doing, they- and not inflation - are unknowingly destroying the real value of constant items never maintained during low inflation.

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith