"No capital maintenance required during low and high inflation and deflation"
IASB´s Capital Maintenance Discussion Paper:
Question 26
Capital maintenance
Capital maintenance is discussed in paragraphs 9.45–9.54. The IASB plans to include the existing descriptions and the discussion of capital maintenance concepts in the revised Conceptual Framework largely unchanged until such time as a new or revised Standard on accounting for high inflation indicates a need for change.
Do you agree? Why or why not? Please explain your reasons.
"Capital maintenance was an important conceptual issue long time ago. In the modern world, this is particularly of importance only to hyper-inflationary economy and IASB is better off tackling this in a separate and dedicated Standard on hyperinflation economy."
Professor Ho Yew Kee
Head
Department of Accounting
NUS Business School
National University of Singapore\
4 November 2013
Prof. Ho Yew Kee´s complete comment letter is available HERE dated 2014-01-06 on Page 1.
Professor Ho Yew Kee does not know about the existence of IAS 29 Financial Reporting in Hyperinflationary Economies authorised by the IASB twenty-four years ago in 1989. He has a completely mistaken view of capital maintenance during low and high inflation and deflation - on par with the IASB´s lack of understanding about the fundamental role a capital maintenance concept has within the accounting framework as pointed out by CPA Australia and the Institute of Chartered Accountants Australia as well as by myself.
Nicolaas Smith Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
A negative interest rate is impossible under CMUCPP in terms of the Daily CPI.
Monday 6 January 2014
Sunday 5 January 2014
IAS 29´s complete failure is of very little importance to the accounting profession
IAS 29´s complete failure is of very little importance to the accounting profession
IAS 29 Financial Reporting in Hyperinflationary Economies requires capital maintenance in units of constant purchasing power in terms of the measuring unit current at the end of the reporting period. This does not result in actual capital maintenance in units of constant purchasing power which can only be achieved in terms of an index that follows all - at least daily - changes in the general price level during hyperinflation, low inflation, high inflation and deflation. IAS 29 requires capital maintenance in units of constant purchasing power in terms of the measuring unit current at the end of the reporting period, i.e., in terms of the monthly published CPI and not the Daily CPI or the daily parallel rate, normally the Daily US Dollar parallel rate.
IAS 29 had absolutely no positive effect during the 8 years it was implemented in Zimbabwe´s hyperinflationary economy.
The fact that IAS 29 had no positive effect in Zimbabwe is not widely known or widely acknowledged ("widely-used") because Zimbabwe´s economy is so small (GDP of USD 5 billion in 2008) that whatever happened there is of absolutely no importance to the accounting profession outside Zimbabwe and especially not to the IASB.
Michael Stewart, the IASB´s Director of Implementation Activities, stated in January, 2013 that the IASB had no view on whether IAS 29 had or did not have a positive effect in Zimbabwe because the IASB had not yet ordered a special review of IAS 29´s implementation in Zimbabwe. He further stated that "financial reporting has no effect on the economy" when he referred to the implementation of IAS 29 in Zimbabwe, which is obviously a completely wrong statement.
The fact that Zimbabwe´s economy imploded after 8 years of the full implementation of IAS 29 is not sufficient for the IASB to realise that IAS 29 had no positive effect in Zimbabwe. The IASB is only capable of making such an evaluation after a special review - according to Michael Stewart.
It thus appears that the IASB as an international accounting standard-setter does not have the common sense and judgement necessary to realise that IAS 29 had no positive effect in Zimbabwe. In my opinion it is much more likely that the IASB does not have the humility to admit that IAS 29 is seriously flawed since it had absolutely no positive effect in Zimbabwe or Venezuela or Belarus.
The IASB will never have to admit that IAS 29 is fundamentally flawed because it is normally implemented in small, unimportant and insignificant economies. After the 2008 financial crisis the IASB quickly had a special task force to deal with fair value because it affected the major world economies. There will never be a special task force at the IASB to fix IAS 29 because it is a matter of almost no importance in the world economy. IAS 29 will most probably never be changed to require capital maintenance in units of constant purchasing power in terms of an index that follows all - at least daily - changes in the general price level because economies like Venezuela and Belarus are of absolutely no importance to the IASB and to the accounting profession in general.
The IASB very much works like a book editor: The Board collects information about what is "widely-accepted" in the accounting profession and then reverse-engineers items to arrive at IFRS that "fit into" what is currently "widely-accepted" with little attempt to arrive at the fundamental concepts behind general purpose accounting and financial reporting.
The fact that IAS 29 had no positive effect in Zimbabwe is thus of almost no consequence at the IASB since it is in general not "widely-accepted" as being of any importance as a result of the insignificance of very small economies like Zimbabwe.
Nicolaas Smith Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
IAS 29 Financial Reporting in Hyperinflationary Economies requires capital maintenance in units of constant purchasing power in terms of the measuring unit current at the end of the reporting period. This does not result in actual capital maintenance in units of constant purchasing power which can only be achieved in terms of an index that follows all - at least daily - changes in the general price level during hyperinflation, low inflation, high inflation and deflation. IAS 29 requires capital maintenance in units of constant purchasing power in terms of the measuring unit current at the end of the reporting period, i.e., in terms of the monthly published CPI and not the Daily CPI or the daily parallel rate, normally the Daily US Dollar parallel rate.
IAS 29 had absolutely no positive effect during the 8 years it was implemented in Zimbabwe´s hyperinflationary economy.
The fact that IAS 29 had no positive effect in Zimbabwe is not widely known or widely acknowledged ("widely-used") because Zimbabwe´s economy is so small (GDP of USD 5 billion in 2008) that whatever happened there is of absolutely no importance to the accounting profession outside Zimbabwe and especially not to the IASB.
Michael Stewart, the IASB´s Director of Implementation Activities, stated in January, 2013 that the IASB had no view on whether IAS 29 had or did not have a positive effect in Zimbabwe because the IASB had not yet ordered a special review of IAS 29´s implementation in Zimbabwe. He further stated that "financial reporting has no effect on the economy" when he referred to the implementation of IAS 29 in Zimbabwe, which is obviously a completely wrong statement.
The fact that Zimbabwe´s economy imploded after 8 years of the full implementation of IAS 29 is not sufficient for the IASB to realise that IAS 29 had no positive effect in Zimbabwe. The IASB is only capable of making such an evaluation after a special review - according to Michael Stewart.
It thus appears that the IASB as an international accounting standard-setter does not have the common sense and judgement necessary to realise that IAS 29 had no positive effect in Zimbabwe. In my opinion it is much more likely that the IASB does not have the humility to admit that IAS 29 is seriously flawed since it had absolutely no positive effect in Zimbabwe or Venezuela or Belarus.
The IASB will never have to admit that IAS 29 is fundamentally flawed because it is normally implemented in small, unimportant and insignificant economies. After the 2008 financial crisis the IASB quickly had a special task force to deal with fair value because it affected the major world economies. There will never be a special task force at the IASB to fix IAS 29 because it is a matter of almost no importance in the world economy. IAS 29 will most probably never be changed to require capital maintenance in units of constant purchasing power in terms of an index that follows all - at least daily - changes in the general price level because economies like Venezuela and Belarus are of absolutely no importance to the IASB and to the accounting profession in general.
The IASB very much works like a book editor: The Board collects information about what is "widely-accepted" in the accounting profession and then reverse-engineers items to arrive at IFRS that "fit into" what is currently "widely-accepted" with little attempt to arrive at the fundamental concepts behind general purpose accounting and financial reporting.
The fact that IAS 29 had no positive effect in Zimbabwe is thus of almost no consequence at the IASB since it is in general not "widely-accepted" as being of any importance as a result of the insignificance of very small economies like Zimbabwe.
Nicolaas Smith Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Friday 27 December 2013
Conceptual Framework Discussion Paper: Notable Comment Letter from the New Zealand Accounting Standards Board
Conceptual Framework Discussion Paper: Notable Comment Letter from the New Zealand Accounting Standards Board
The NZASB notes:
"We regard the conceptual framework project to be a priority project and commend the IASB for taking the project on. We are pleased that the IASB is developing the Conceptual Framework as a whole; in a single phase, rather than in multiple phases as was originally planned.
Completing the project in a single phase enables the links between different aspects of the framework to be considered and issues to be dealt with coherently and comprehensively. The Discussion Paper therefore is helpful in providing a collation of issues that the IASB seeks to consider in the project.
Support for the project and taking an appropriate amount of time in order to be an improvement on the existing Conceptual Framework
As noted above, we are pleased that the IASB is completing the conceptual framework project in a single phase. Although the Discussion Paper is under-developed in places, we support the IASB intention of inviting comments on an early draft so that early feedback can be obtained on the direction of the project. This will enable the IASB to further refine the scope, content and approach to the conceptual framework project.
However, given the extent of work required for that refinement, the range and complexity of the issues to be addressed and the divergence of views on those issues, if any new framework is going to be a sufficient improvement on the existing Conceptual Framework, more time will be required to debate and deal with the many issues that need to be addressed. Therefore, we strongly encourage the IASB to reconsider the timetable for the next phase of the project.
While we understand the desire to avoid the project taking too long, the revised Conceptual Framework needs to be enduring and a significant improvement on the existing Conceptual Framework, as it is unlikely to be reviewed again in the near future. Therefore, we strongly encourage the IASB to take an appropriate amount of time to complete the project in order to achieve a higher quality Conceptual Framework. This is certainly preferable to completing the project in a short timeframe resulting in a framework that is not a significant improvement on the existing Conceptual Framework, or that is not comprehensive and/or contains concepts that are not sufficiently robust. In particular, we consider more time should be taken to further develop the following fundamental areas without which any revised Conceptual Framework
would not be a sufficient improvement on the current Conceptual Framework:
(a) the meaning of ‘financial performance’;
(b) the distinction between profit or loss and OCI;
(c) the meaning of ‘present obligation’;
(d) recognition criteria (and how to deal with uncertainty);
(e) measurement; and
(f) presentation and disclosure.
The above points are discussed in more detail in the appendix to this letter, in our responses to the specific questions for respondents. In addition, in a number of areas, the discussion is too detailed and focused on particular items or issues in isolation. We consider that more time needs to be taken to consider the consistency of concepts across all aspects of the financial statements and to consider the coherence of the Conceptual Framework as a whole. We also consider that providing an executive summary of Conceptual Framework would be helpful to constituents given that the revised Conceptual Framework is likely to be a much longer document and preparing a summary would assist in considering the consistency and coherence of the Conceptual Framework as a whole
Role of the Conceptual Framework
It is important to be clear about the role of the Conceptual Framework, as it has a significant impact on the project, in particular, how issues are approached. We consider that the Conceptual Framework should continue to be a framework of accounting concepts - rather than accounting conventions, methods, or practical expedients. This does not mean that the Conceptual Framework is a highly idealistic document that has little application in the real world. On the contrary, accounting concepts should be based on real
world economic phenomena. The Conceptual Framework provides the foundation for the preparation of General Purpose Financial Reports (GPFR). If those GPFR are to provide useful information to users, then the concepts need to be grounded in real world economic phenomena. Rather, the point is that the Conceptual Framework should contain concepts without compromises. Standards-level considerations (such as practical and/or political
considerations) might result in the need for compromise but those compromises are dealt with at standards-level; they should not be embedded into the Conceptual Framework.
If compromises are embedded into the Conceptual Framework it will fail to serve its purpose of providing a conceptual foundation for GPFR. For this reason, the Conceptual Framework project should not be used as an opportunity to codify or justify existing accounting treatments without
adequate conceptual justification. We are concerned that there are parts of the Discussion Paper where this seems to be happening; there are places where the Discussion Paper catalogues existing accounting treatments in particular accounting standards, seemingly without any question of the underlying conceptual rationale for those treatments.
In addition, the Conceptual Framework is not a standard and, therefore, should not be treated as such. For example, in most cases, the Conceptual Framework should describe accounting concepts, rather than precisely define them. Because the Conceptual Framework is not a standard, it does not contain any accounting requirements, which means that it is often not necessary to include precise definitions or definitive specifications about the application of concepts. Also, because the Conceptual Framework is not a standard, it is not necessary or appropriate to build in ‘anti-abuse’ rules into the Conceptual Framework, such as the comments in paragraph 1.29 about restricting the use of guidance in the Conceptual Framework on when income or expense items would be presented in profit or loss or other comprehensive income (OCI). Any restrictions on the use of concepts should be dealt with at the standards-level, which is where requirements are established.
Furthermore, the IASB aims to set principles-based standards, therefore, the Conceptual Framework too has to be principles-based.
Purpose of the Conceptual Framework
We consider that the Conceptual Framework is not there only to guide the IASB in standards-level projects. The concepts in the Conceptual Framework are pervasive – these concepts underlie the preparation and presentation of GPFR and therefore the concepts impact on all aspects of financial reporting. This includes – but is not limited to – the IASB’s role in setting accounting standards. The Conceptual Framework is used by the IASB but is also used by:
(i) preparers and auditors to interpret and apply standards;
(ii) users of GPFR to understanding the concepts and basis used to prepare GPFR; and
(ii) all as the basis for communication of accounting concepts and issues using commonly understood accounting language.
The list of uses and users of the Conceptual Framework is a reflection of this pervasiveness. Therefore, just because the IASB is a primary user of the Conceptual Framework does not mean that the Conceptual Framework should be focused on the IASB’s needs in setting standards. The IASB has an important role in setting standards, but that role is only one part of the financial reporting process. The Conceptual Framework has a much broader purpose, as is stated in the existing Conceptual Framework and it is important to keep this broader purpose in mind, because it provides the context for the Conceptual Framework, that is, the Conceptual Framework is a conceptual framework for general purpose financial reporting, not a toolkit for the IASB in setting standards.
Departures from the Conceptual Framework
We strongly support the proposal to explain any departures from the Conceptual Framework in any accounting standards. However, we consider that it is not helpful to refer to such departures as being ‘rare’. In any standards-level project, there are a variety of considerations that include, but are not
limited to, the concepts in the Conceptual Framework. Other considerations, such as pragmatic and/or political considerations, might result in the need for a compromise in a particular standard. That does not mean that the Conceptual Framework is flawed or not sufficiently robust, it is simply a reflection of the reality of setting accounting standards. It is not realistic –
or appropriate – to indicate the frequency with which departures might occur.
Doing so has the following implications:
(a) It treats the Conceptual Framework as some form of constitution but a constitution (such as a constitution of a company or a country) is essentially a governance document, which acts to place some constraints on a governing body (of the entity/country) in order to protect other parties (such as shareholders and citizens). We consider that the Conceptual Framework is not a governance document.
(b) For departures to be rare, it would be necessary for either:
(i) The IASB to look ahead and anticipate all the key standards-level considerations and all possible future types of transactions, so that they can be taken into account when developing the Conceptual Framework – this is not possible; and/or
(ii) The Conceptual Framework would need to contain concepts that are at a very high level, vague or ambiguous, so that any standards-level requirements can be said to Instead of referring to ‘rare cases’, in our view, the key point is that the Conceptual Framework provides the conceptual foundation for setting standards and hence should always be the starting point in any standards project. In addition, any departures from (or conflicts with) the Conceptual Framework because of other standards-level factors need to be carefully considered and explained.
Working with the IPSASB
We encourage the IASB and the IPSASB to work closely together in developing their conceptual frameworks as the two Boards are likely to be considering similar issues. We consider that the development of the conceptual frameworks is too important for the two Boards to be working independently of each other. Ideally, the IASB and IPSASB frameworks should only contain
different concepts in instances where there are differences between private and public sectors.
Responses to specific questions for respondents
We consider that a number of issues discussed in the Discussion Paper are unresolved and further development and/or significant revision is required in a number of areas. Hence, there are some areas in which we consider that the specific questions for respondents are not necessarily focused on the right issues. Nevertheless, our responses to the specific questions for respondents are provided in the appendix to this letter.
The complete comment letter is available HERE dated 2013-12-20 on Page 1.
Thursday 26 December 2013
Conceptual Framework Discussion Paper: Notable Comment Letter from the INSTITUT DER WIRTSCHAFTSPRÜFER
Conceptual Framework Discussion Paper: Notable Comment Letter from the INSTITUT DER WIRTSCHAFTSPRÜFER
The IDW notes:
"The IDW appreciates the opportunity to comment on the IASB Discussion
Paper 2013/1 ‘A Review of the Conceptual Framework for Financial Reporting.
In general, we welcome the Board’s decision to reinitiate the Conceptual
Framework project. However, we believe that the timing of the publication of the Discussion Paper is inopportune as the Board is still working on its four main standard projects (revenue recognition, leases, insurance contracts and
financial instruments). It is essential to ensure that these long-term projects are consistent with one another and completed with priority. Upon completion of these projects, the Board should use the insights gained for revising the
Conceptual Framework.
We agree with the Board’s decision to develop a complete set of proposals for a revised Conceptual Framework, i.e. not to continue with the phased approach.
Given the complexity as well as the interdependency of the various issues
addressed in the Conceptual Framework project, a phased approach would
necessarily result in unintended consequences and could lead to new
inconsistencies. However, we had expected the Board to undertake a
fundamental and comprehensive review of the Conceptual Framework rather
than merely ‘updating, improving and filling in gaps’. Currently it seems to us
that the IASB is only proposing a quick fix solution.
We doubt whether the proposals in the Discussion Paper reflect the significance of the Conceptual Framework appropriately. Many of the proposed approaches (e.g. to profit and loss and recycling or for the distinction between equity and liabilities) seem only ‘half-baked’. Moreover, in some cases the dividing line between the principles in the Conceptual Framework and the provisions in IAS 1 is not readily identifiable (e.g. in the case of going concern). Obviously, much more time is needed, and we urge the IASB to take the time necessary to revise the Framework in such a way that it can provide both, a consistent and sound conceptual basis for financial reporting under IFRS and be of real assistance to the IASB in developing or amending future Standards.
Although the specific provisions at the Standards level should always take
precedence over the principles of the Conceptual Framework, the Conceptual
Framework must be generally binding when the IASB develops or amends
Standards. Therefore, we recommend that – going forward – the IASB’s
adherence to the final provisions of the Conceptual Framework should be
monitored. This would also contribute to improving the accountability of the
entire IASB’s standard-setting process. A departure from the Conceptual
Framework should only be possible in rare cases."
The IDW notes:
"The IDW appreciates the opportunity to comment on the IASB Discussion
Paper 2013/1 ‘A Review of the Conceptual Framework for Financial Reporting.
In general, we welcome the Board’s decision to reinitiate the Conceptual
Framework project. However, we believe that the timing of the publication of the Discussion Paper is inopportune as the Board is still working on its four main standard projects (revenue recognition, leases, insurance contracts and
financial instruments). It is essential to ensure that these long-term projects are consistent with one another and completed with priority. Upon completion of these projects, the Board should use the insights gained for revising the
Conceptual Framework.
We agree with the Board’s decision to develop a complete set of proposals for a revised Conceptual Framework, i.e. not to continue with the phased approach.
Given the complexity as well as the interdependency of the various issues
addressed in the Conceptual Framework project, a phased approach would
necessarily result in unintended consequences and could lead to new
inconsistencies. However, we had expected the Board to undertake a
fundamental and comprehensive review of the Conceptual Framework rather
than merely ‘updating, improving and filling in gaps’. Currently it seems to us
that the IASB is only proposing a quick fix solution.
We doubt whether the proposals in the Discussion Paper reflect the significance of the Conceptual Framework appropriately. Many of the proposed approaches (e.g. to profit and loss and recycling or for the distinction between equity and liabilities) seem only ‘half-baked’. Moreover, in some cases the dividing line between the principles in the Conceptual Framework and the provisions in IAS 1 is not readily identifiable (e.g. in the case of going concern). Obviously, much more time is needed, and we urge the IASB to take the time necessary to revise the Framework in such a way that it can provide both, a consistent and sound conceptual basis for financial reporting under IFRS and be of real assistance to the IASB in developing or amending future Standards.
Although the specific provisions at the Standards level should always take
precedence over the principles of the Conceptual Framework, the Conceptual
Framework must be generally binding when the IASB develops or amends
Standards. Therefore, we recommend that – going forward – the IASB’s
adherence to the final provisions of the Conceptual Framework should be
monitored. This would also contribute to improving the accountability of the
entire IASB’s standard-setting process. A departure from the Conceptual
Framework should only be possible in rare cases."
Friday 20 December 2013
IASB believes that capital maintenance is only required during high inflation and hyperinflation
The constant purchasing power (real value) of capital needs to be maintained constant during low inflation and deflation and not only during high inflation and hyperinflation as it is generally accepted.
‘It is essential to the credibility of financial reporting to recognize that the recovery of the real cost of investment is not earnings — that there can be no earnings unless and until the purchasing power of capital is maintained.’
FAS 33 1979: 24
The above statement refers to low inflation and deflation too.
The following is Question 26 regarding Capital Maintenance in the IASB´s Discussion Paper on the Conceptual Framework:
Question 26 - Other Issues:
Capital maintenance
Capital maintenance is discussed in paragraphs 9.45–9.54. The IASB plans to include the existing descriptions and the discussion of capital maintenance concepts in the revised Conceptual Framework largely unchanged until such time as a new or revised Standard on accounting for high inflation indicates a need for change.
Do you agree? Why or why not? Please explain your reasons
The IASB clearly implies above that capital maintenance in units of constant purchasing power (which would maintain the real value of equity) is only required as from the onset of high inflation. The IASB luckily also discovered recently (in June 2013 after I had pointed it out to them) that capital maintenance in units of constant purchasing power was actually required in IAS 29 Financial Reporting in Hyperinflationary Economies even though the Board had authorised it twenty four years ago in 1989. The IASB staff recently (April 2013) still mistakenly stated that there is no guidance in IFRS regarding capital maintenance in units of constant purchasing power. The IASB is by now at least well aware that IAS 29 requires capital maintenance in units of constant purchasing power in terms of the monthly published CPI.
No company in the world knows whether it maintained in the past and currently maintains the constant purchasing power of its capital constant during low and high inflation and deflation. No company in the world does that calculation during low and high inflation and deflation. No-one knows.
Financial capital maintenance in nominal monetary units during 2 percent annual inflation - mistakenly regarded as price stability in the US and European Monetary Union (and everywhere else) - results in the erosion (destruction) of the constant purchasing power (real value) of equity in that portion of equity that is not covered by the REAL value of net assets. 100% of equity being equal to 100% of net assets IN NOMINAL MONETARY TERMS (i.e., balancing the books under financial capital maintenance in nominal monetary units under the Historical Cost Accounting model) does not guarantee that the real value (constant purchasing power) of equity is being maintained constant during low and high inflation and deflation.
The following are the answers of some respondents to Question 26. It can be seen that they mistakenly believe that capital maintenance only applies as from the onset of high inflation and that it is not required during low inflation.
1. AUSTRALASIAN COUNCIL OF AUDITORS‐GENERAL
ACAG has no view on this issue. The Australian public sector has not been in a high inflation environment for many years and the capital maintenance paragraphs in the existing Conceptual Framework are rarely used.
It is very clear from the above that concepts of capital maintenance are rarely used during low inflation in Australasia.
This view that the capital maintenance paragraphs in the existing Conceptual Framework are rarely used is a very good overall summary regarding capital maintenance during low inflation and deflation, not only in Australasia, but also in the world economy.
2. INSTITUT DER WIRTSCHAFTSPRUFER
We agree with the Board´s view to deliberate the appropriate capital maintenance concept when discussing accounting for high inflation.
Capital maintenance - maintaining the real value of equity - during low inflation is obviously not considered important in Germany.
3. EUROPEAN SECURITIES AND MARKET AUTHORITY
ESMA is not aware of any issues with IAS 29 Financial Reporting in Hyperinflationary Economies but would welcome a clearer reference in the ED as ESMA agrees that something could be done in the revised CF.
4. THE HONG KONG ASSOCIATION OF BANKS
We agree with the IASB to defer revision or refinement until it is needed, because we have
not encountered high inflation issues.
The Hong Kong Association of Banks clearly also believes no capital maintenance is required during low inflation.
5. THE CERTIFIED GENERAL ACCOUNTANTS ASSOCIATION OF CANADA
We agree that the IASB should defer its work on capital maintenance until it develops new provisions or revises the extant Standard (IAS 29) on accounting for hyperinflation.
See also: IASB has "a lack of understanding about the fundamental role a capital maintenance concept has within the accounting framework"
See also: IASB has "a lack of understanding about the fundamental role a capital maintenance concept has within the accounting framework"
Monday 16 December 2013
Conceptual Framework Discussion Paper: Notable Comment Letter from The Linde Group
Conceptual Framework Discussion Paper: Notable Comment Letter from The Linde Group
Question 26 - Other Issues:
Capital maintenance
Capital maintenance is discussed in paragraphs 9.45–9.54. The IASB plans to include the existing descriptions and the discussion of capital maintenance concepts in the revised Conceptual Framework largely unchanged until such time as a new or revised Standard on accounting for high inflation indicates a need for change.
Do you agree? Why or why not? Please explain your reasons
"The concept of capital maintenance drives virtually all recognition and measurement rules that exist in a set of accounting rules (except for most disclosure requirements). Therefore the prescription of capital maintenance philosophy behind is the nucleus of all that follows and should be named and illustrated at the beginning of the framework. The theoretically most relevant sort of capital maintenance is the maintenance of earnings power.
This means that a net gain is only given if the dcf value of the company has changed positively. Given that such a concept of capital maintenance is impracticable, IFRS should at least aim at an approximation to this und the restriction of inter-subjective provability. This means that cost accounting for a machine for instance represents an approximation of the earnings power of this machine if you assume that – at the time of acquisition the maximum purchase price for the machine from the company’s perspective was determined on the basis of a rationale decision process and state of the art valuation techniques in place so that the acquisition cost do not exceed the earning potential within the company. Under these conditions the price paid by the company for the acquisition of the machine represents an observable and therefore verifiable minimum earnings contribution of the asset to the overall earning power of the company. Depreciation then represents a – also very rough but well verifiable – roll forward of this approximated earning contribution value. Once there is evidence that this value is overstated it has to be corrected to the correct amount in the way of impairment.
In the light of such a capital maintenance concept that only sacrifices earning power contribution for sake of verifiability, the definition of unit of account can be refined more precisely and the basic assumptions for definition and recognition can be derived. Therefore we would plead for giving this point more prominence."
Sunday 15 December 2013
Conceptual Framework Discussion Paper: Notable Comment Letter from the Australian Heads of Treasuries Accounting and Reporting Advisory Commitee
Conceptual Framework Discussion Paper: Notable Comment Letter from the Australian Heads of Treasuries Accounting and Reporting Advisory Committee
The HoTARAC notes:
"HoTARAC has significant concerns on the discussion in a number of areas.
HoTARAC does not believe the discussion of topics proceeds in a logical progression from a coherent set of core principles. In HoTARAC´s view, this, at least in part, derives from:
The HoTARAC notes:
"HoTARAC has significant concerns on the discussion in a number of areas.
HoTARAC does not believe the discussion of topics proceeds in a logical progression from a coherent set of core principles. In HoTARAC´s view, this, at least in part, derives from:
- insufficient consideration of the objectives of financial reporting and their application to the topics at hand, and reliance on the existing chapters of the conceptual framework;
- delegation of core concepts, often fundamental to the topic discussed, to other projects; and
- the framework being developed to justify current practice, rather than from a sound conceptual basis.
The framework also appears to be developed in isolation from advances in related disciplines, such as communication, finance, economics and valuation with a consequent risk of loss of relevance.
Additionally, HoTARAC is concerned that the framework is being developed without consideration of the future direction of financial reporting, including the development of standards for the not-for-porfit and public sectors."
The complete comment letter is available HERE dated 2013-12-02 on Page 1.
Friday 13 December 2013
Venezuela is NOT in hyperinflation according to lunatic fringe economist Prof. Steve Hanke
Venezuela is NOT in hyperinflation according to lunatic fringe economist Prof. Steve Hanke: see
Venezuela’s Playbook: The Communist Manifesto
Millions of accountants and economists world wide follow the International Accounting Standard Board´s definition of 100% cumulative inflation over three years. That is 26% annual inflation for three years in a row.Venezuela has thus been officially in hyperinflation since November 2009 and has officially been implementing IAS 29 Financial Reporting in Hyperinflationary Economies for that year end and all following financial periods till today. Steve Hanke simply ignores that.
Venezuela is currently at about 5% monthly inflation or 54% official annual inflation. Hanke puts Venezuela´s implied annual inflation currently at 297% - still far away from his 13 000% annual inflation threshold before hyperinflation takes hold in Venezuela - according to the lunatic fringe crowd.
Lunatic fringe Steve Hanke is waiting for Venezuela to reach 50% monthly inflation, i.e., 13 000 percent annual inflation before he will agree that Venezuela is in hyperinflation.
Only he, his students (obviously) and a handful other lunatic fringe economists think like that.
The lunatic fringe Professor derides Maduro´s economic policies while Hanke himself refuses to acknowledge the generally accepted, globally implemented definition of hyperinflation.
I would not recommend Hanke for any advice regarding hyperinflation. He also continues to peddle his obsolete and extremely costly Dollarization and Currency Board solutions (which also removes a country´s independent monetary policy capability) to fight hyperinflation.
Daily Indexing (Capital Maintenance in Units of Constant Purchasing Power in terms of a Daily CPI) is free as well as authorized in International Financial Reporting Standards and US GAAP.
Nicolaas Smith Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Monday 2 December 2013
Computation of the Daily CPI in Turkey
Computation of the Daily CPI in Turkey
The Daily CPI is a lagged, daily interpolation of the monthly published CPI.
All countries issuing government capital inflation-indexed bonds calculate Daily CPIs. Daily CPIs can be one to four month lagged, daily interpolations.
Turkey uses a three-month lagged daily interpolation of its monthly published CPI.
Computation of the Daily CPI in Turkey
The Turkish Daily CPI is available HERE. (Click on Reference Indices under
Turkey can use the above Daily CPI to implement Capital Maintenance in Units of Constant Purchasing Power in terms of a Daily CPI during low inflation as authorised in IFRS in the Conceptual Framework (2010), Par. 4.59 (a) which states:
"Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power."
CMUCPP in terms of a Daily CPI would automatically maintain the constant purchasing power of capital (equity) constant for an indefinite period of time - ceteris paribus - in all entities that at least break even in real value at all levels of inflation and deflation.
Nicolaas Smith
Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
The Daily CPI is a lagged, daily interpolation of the monthly published CPI.
All countries issuing government capital inflation-indexed bonds calculate Daily CPIs. Daily CPIs can be one to four month lagged, daily interpolations.
Turkey uses a three-month lagged daily interpolation of its monthly published CPI.
Computation of the Daily CPI in Turkey
The Turkish Daily CPI is available HERE. (Click on Reference Indices under
CPI Indexed Government Bonds)
Turkey can use the above Daily CPI to implement Capital Maintenance in Units of Constant Purchasing Power in terms of a Daily CPI during low inflation as authorised in IFRS in the Conceptual Framework (2010), Par. 4.59 (a) which states:
"Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power."
CMUCPP in terms of a Daily CPI would automatically maintain the constant purchasing power of capital (equity) constant for an indefinite period of time - ceteris paribus - in all entities that at least break even in real value at all levels of inflation and deflation.
Nicolaas Smith
Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Wednesday 27 November 2013
Not indexing bank interest to inflation may be unconstitutional
Not indexing bank interest to inflation may be unconstitutional.
Nicolaas Smith Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Nicolaas Smith Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Tuesday 26 November 2013
Venezuela: best real-time economics lesson about HCA during hyperinflation in an oil-rich country
Venezuela: Historical Cost Accounting 101 during hyperinflation in an oil-rich country
1. The real value of the Bolivar (a monetary item) is being destroyed by Historical Cost Accounting. Proof: If all monetary items (items expressed in Bolivars) in Venezuela were inflation-indexed DAILY there would be no loss of real value in these items. Like Brazil did with many monetary items (not all) from 1964 to 1994. There would, however, still be hyperinflation while the Central Bank of Venezuela keeps on creating too many Bolivars. But, there would be no destruction of real value over time in Bolivar monetary items in Venezuela. Prof Steve Hanke said this is an interesting idea.
Who is to blame: The International Accounting Standards Board.
Why? The IASB requires Venezuela to implement IAS 29 Financial Reporting in Hyperinflationary Economies in terms of the MONTHLY published CPI. It has been implemented in Venezuela since 2009.
Solution: The IASB should change IAS 29 to require DAILY INDEXING instead of the use of the monthly published CPI. This was done very successfully in Brazil and other Latin American countries in the past. The IASB simply ignores that.
2. The real value of variable real value non-monetary items (e.g. electrical appliances) is being destroyed by Nicolas Maduro´s price fixing.
Who is to blame: Nicolas Maduro and his advisers.
Solution: These variable real value non-monetary items should be valued at the parallel rate and normal forces of competitive demand and supply should be allowed to rule in the market. There would - ceteris paribus - be no loss of real value in these items.
3. The real value of constant real value non-monetary items, e.g., salaries, wages, rents, trade debtors, trade creditors, etc. is being destroyed by Historical Cost Accounting. Proof: If they were measured in units of constant purchasing power in terms of a DAILY INDEX there would be no loss of real value in these items, i.e., no loss of real value in salaries, wages, rents, trade debtors, trade creditors, etc. Like Brazil did from 1964 to 1994.
Who is to blame: The International Accounting Standards Board.
Why? The IASB requires Venezuela to implement IAS 29 Financial Reporting in Hyperinflationary Economies in terms of the MONTHLY published CPI. It has been implemented in Venezuela since 2009.
Solution: The IASB should change IAS 29 to require DAILY INDEXING instead of the use of the monthly published CPI. This was done very successfully in Brazil and other Latin American countries in the past. The IASB simply ignores what happened in Brazil in the past.
Why does the IASB not change IAS 29 to require DAILY indexing?
(i) The IASB does not understand financial capital maintenance in units of constant purchasing power in terms of a DAILY index. The IASB is too arrogant to spend the time to properly find out the benefits of Daily Indexing. Financial capital maintenance in units of constant purchasing power at all levels of inflation and deflation was authorised by the IASB twenty four years ago in the original Framework (1989), Par. 104 (a) which states: "Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power."
(ii) According to Michael Stewart, the Director of Implementation Activities - the IASB´s view is that financial reporting has no effect on the economy. (That was an absolutely silly statement by Michael Stewart. It shows the low level of understanding of basic accounting and economic concepts at the IASB.)
(iii) The IASB is not responsible enough to take financial capital maintenance in units of constant purchasing power in terms of a DAILY INDEX seriously.
(iv) Venezuela and Belarus are relatively small economies and thus not important to the IASB. When the world economy was crippled during the 2008 financial crisis, the IASB had a special task force to deal with fair value accounting. The IASB has not even included research regarding Daily Indexing in Research projects on which preliminary work is not expected to commence until after the 2015 agenda consultation. After an agenda consultation, the IASB normally takes one year to come to conclusions regarding the consultation. They are very laid back at the IASB. The research project Financial Reporting in High Inflationary Economies is now included by the IASB in Research projects for which the timing of preliminary work has not yet been confirmed, i.e., perhaps in 2017 or later.
(v) According to Michael Stewart, the IASB is incapable of expressing a view regarding whether IAS 29 had a positive or negative effect on Zimbabwe´s hyperinflationary economy in the past since the Board has not yet had a special review of the problem while all other accountants in the world would generally agree that it is very, very obvious that IAS 29 had no positive effect on Zimbabwe´s economy like it is currently not having a positive effect on the Venezuelan economy. The IASB cannot grasp that.
Nicolaas Smith
Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
1. The real value of the Bolivar (a monetary item) is being destroyed by Historical Cost Accounting. Proof: If all monetary items (items expressed in Bolivars) in Venezuela were inflation-indexed DAILY there would be no loss of real value in these items. Like Brazil did with many monetary items (not all) from 1964 to 1994. There would, however, still be hyperinflation while the Central Bank of Venezuela keeps on creating too many Bolivars. But, there would be no destruction of real value over time in Bolivar monetary items in Venezuela. Prof Steve Hanke said this is an interesting idea.
Who is to blame: The International Accounting Standards Board.
Why? The IASB requires Venezuela to implement IAS 29 Financial Reporting in Hyperinflationary Economies in terms of the MONTHLY published CPI. It has been implemented in Venezuela since 2009.
Solution: The IASB should change IAS 29 to require DAILY INDEXING instead of the use of the monthly published CPI. This was done very successfully in Brazil and other Latin American countries in the past. The IASB simply ignores that.
2. The real value of variable real value non-monetary items (e.g. electrical appliances) is being destroyed by Nicolas Maduro´s price fixing.
Who is to blame: Nicolas Maduro and his advisers.
Solution: These variable real value non-monetary items should be valued at the parallel rate and normal forces of competitive demand and supply should be allowed to rule in the market. There would - ceteris paribus - be no loss of real value in these items.
3. The real value of constant real value non-monetary items, e.g., salaries, wages, rents, trade debtors, trade creditors, etc. is being destroyed by Historical Cost Accounting. Proof: If they were measured in units of constant purchasing power in terms of a DAILY INDEX there would be no loss of real value in these items, i.e., no loss of real value in salaries, wages, rents, trade debtors, trade creditors, etc. Like Brazil did from 1964 to 1994.
Who is to blame: The International Accounting Standards Board.
Why? The IASB requires Venezuela to implement IAS 29 Financial Reporting in Hyperinflationary Economies in terms of the MONTHLY published CPI. It has been implemented in Venezuela since 2009.
Solution: The IASB should change IAS 29 to require DAILY INDEXING instead of the use of the monthly published CPI. This was done very successfully in Brazil and other Latin American countries in the past. The IASB simply ignores what happened in Brazil in the past.
Why does the IASB not change IAS 29 to require DAILY indexing?
(i) The IASB does not understand financial capital maintenance in units of constant purchasing power in terms of a DAILY index. The IASB is too arrogant to spend the time to properly find out the benefits of Daily Indexing. Financial capital maintenance in units of constant purchasing power at all levels of inflation and deflation was authorised by the IASB twenty four years ago in the original Framework (1989), Par. 104 (a) which states: "Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power."
(ii) According to Michael Stewart, the Director of Implementation Activities - the IASB´s view is that financial reporting has no effect on the economy. (That was an absolutely silly statement by Michael Stewart. It shows the low level of understanding of basic accounting and economic concepts at the IASB.)
(iii) The IASB is not responsible enough to take financial capital maintenance in units of constant purchasing power in terms of a DAILY INDEX seriously.
(iv) Venezuela and Belarus are relatively small economies and thus not important to the IASB. When the world economy was crippled during the 2008 financial crisis, the IASB had a special task force to deal with fair value accounting. The IASB has not even included research regarding Daily Indexing in Research projects on which preliminary work is not expected to commence until after the 2015 agenda consultation. After an agenda consultation, the IASB normally takes one year to come to conclusions regarding the consultation. They are very laid back at the IASB. The research project Financial Reporting in High Inflationary Economies is now included by the IASB in Research projects for which the timing of preliminary work has not yet been confirmed, i.e., perhaps in 2017 or later.
(v) According to Michael Stewart, the IASB is incapable of expressing a view regarding whether IAS 29 had a positive or negative effect on Zimbabwe´s hyperinflationary economy in the past since the Board has not yet had a special review of the problem while all other accountants in the world would generally agree that it is very, very obvious that IAS 29 had no positive effect on Zimbabwe´s economy like it is currently not having a positive effect on the Venezuelan economy. The IASB cannot grasp that.
Nicolaas Smith
Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Saturday 16 November 2013
Daily indexing (CMUCPP) is a paradigm change
Daily indexation, i.e., Capital Maintenance in Units of Constant Purchasing Power in terms of a Daily Index as authorized in IFRS and US GAAP was the macroeconomic measure that stabilized the Brazilian non-monetary and daily indexed monetary economy during hyperinflation.
Asked to define Twitter someone said:
Twitter is the essential utility we need – which we only realized we needed, once we actually had it.
Daily indexing (CMUCPP) is the FREE essential paradigm change needed in Venezuela.
Official dollarization is very costly AND the country loses independent monetary policy.
Spontaneous dollarization is also “free” but the country will continue to lose independent monetary policy.
Daily indexation (CMUCPP) would stablize an economy AT NO COST at any rate of inflation or deflation.
Daily indexation (CMUCPP) is a paradigm change. It is a macroeconomic measure.
Daily indexation (CMUCPP) stops the Historical Cost paradigm. It stops the stable measuring unit assumption being implemented.
Nicolaas Smith
Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Sunday 27 October 2013
Third prize for The Silliest Statement Regarding Accounting in 2013-to-date
Third Prize for The Silliest Statement Regarding Accounting in 2013-to-date is awarded to Michael Stewart, Director of Implementation Activities at the International Accounting Standards Board for his statement that "Financial reporting has NO EFFECT on the economy" on 8 January 2013 in London.
First Prize: IASB STAFF for the statement
"23. Consequently, we are of the view that IFRSs PROHIBIT an entity from preparing its financial statements under the concept of financial capital maintenance defined in constant purchasing power units unless the entity falls within the scope of IAS 29."
Second Prize: PROF. STEVE HANKE
Second prize goes to Prof. Steve Hanke for the following statement:
"Hyperinflation begins when a country experiences an inflation rate of greater than 50% percent per month — which comes out to about 13,000% per year."
IAS 29 Financial Reporting in Hyperinflationary Economies, Par. 3 states:
"Hyperinflation is indicated by characteristics of the economic environment of a country which include, but are not limited to, the following:
(e) the cumulative inflation rate over three years is approaching, or exceeds, 100%."
These awards will only be finalised on 1 January 2014.
Nicolaas Smith Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
First Prize: IASB STAFF for the statement
"23. Consequently, we are of the view that IFRSs PROHIBIT an entity from preparing its financial statements under the concept of financial capital maintenance defined in constant purchasing power units unless the entity falls within the scope of IAS 29."
Second Prize: PROF. STEVE HANKE
Second prize goes to Prof. Steve Hanke for the following statement:
"Hyperinflation begins when a country experiences an inflation rate of greater than 50% percent per month — which comes out to about 13,000% per year."
IAS 29 Financial Reporting in Hyperinflationary Economies, Par. 3 states:
"Hyperinflation is indicated by characteristics of the economic environment of a country which include, but are not limited to, the following:
(e) the cumulative inflation rate over three years is approaching, or exceeds, 100%."
These awards will only be finalised on 1 January 2014.
Nicolaas Smith Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Tuesday 22 October 2013
Official and parallel rate generally unify at the parallel rate
The official and real (often the parallel) exchange rate with the US Dollar generally unify at the parallel rate. This is now happening in Cuba. Eventually it will also happen in Venezuela and Belarus.
Cuba to scrap dual-currency system (BBC)
Nicolaas Smith
Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Cuba to scrap dual-currency system (BBC)
Nicolaas Smith
Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Wednesday 16 October 2013
IAS 29 Financial Reporting in Hyperinflationary Economies—Applicability of the concept of financial capital maintenance defined in terms of constant purchasing power units
Interpretations Committee tentative agenda decision
The Interpretations Committee reviewed the following matter and tentatively decided that it should not be added to the Interpretations Committee's agenda. This tentative decision, including recommended reasons for not adding the items to the Interpretations Committee's agenda, will be reconsidered at the Interpretations Committee meeting in January 2014.
Interested parties who disagree with the proposed reasons, or believe that the explanations may contribute to divergent practices, are encouraged to email those concerns by 20 November 2013 to ifric@ifrs.org. Correspondence will be placed on the public record unless the writer requests confidentiality, supported by good reason, such as commercial confidence.
IAS 29 Financial Reporting in Hyperinflationary Economies—Applicability of the concept of financial capital maintenance defined in terms of constant purchasing power units
The Interpretations Committee considered the following two questions:
a. whether an entity is permitted to use the financial capital maintenance concept defined in terms of constant purchasing power units that is described in the Conceptual Framework when the entity's functional currency is not the currency of a hyperinflationary economy as described in IAS 29 Financial
Reporting in Hyperinflationary Economies; and
b. if such use is permitted, whether the entity needs to apply IAS 29 to its financial statements prepared under a specific model of that concept of financial capital maintenance when it falls within the scope of
IAS 29.
The Interpretations Committee observed that the guidance in the Conceptual Framework is written to assist the IASB in the development of Standards and that it is also used in the development of an accounting policy only when no IFRSs specifically apply to a particular transaction, other event or condition and no IFRSs deal with similar and related issues. Consequently the guidance in the Conceptual Framework relating to the use of a particular capital maintenance concept cannot be used to override the requirements of individual IFRSs. An entity is not permitted to apply a concept of capital maintenance that conflicts with the existing requirements in a particular IFRS, when applying that IFRS.
In addition, the Interpretations Committee noted that the results of the outreach indicate that these issues are not widespread. For this reason the Interpretations Committee [decided] not to add these issues to its
agenda.
The IASB staff´s guidance to the IASB Interpretations Committee was as follows:
23. Consequently, we are of the view that IFRSs PROHIBIT an entity from preparing its financial statements under the concept of financial capital maintenance defined in constant purchasing power units unless the entity falls within the scope of IAS 29.
STAFF PAPER Agenda ref 12 PROJECT IAS 29 Financial Reporting in Hyperinflationary Economies PAPER TOPIC Applicability of the concept of financial capital maintenance defined in constant purchasing power units
The above guidance earned the IASB Staff this award.
STAFF PAPER Agenda ref 12 PROJECT IAS 29 Financial Reporting in Hyperinflationary Economies PAPER TOPIC Applicability of the concept of financial capital maintenance defined in constant purchasing power units
The above guidance earned the IASB Staff this award.
Monday 14 October 2013
Congratulations to Shiller, Fama and Hansen for sharing the 2013 Nobel Prize in Economic Sciences
Eugene F. Fama, Robert J. Shiller and Lars Peter Hansen shared the 2013 Nobel Prize in Economic Sciences for their research on how the market prices of assets such as stocks move. (Bloomberg)
Robert Shiller has also done very important research regarding government capital inflation-indexed bonds. These bonds are inflation-adjusted daily in terms of a country specific Daily CPI. A Daily CPI is a 2-, 3- or 4-month lagged, daily interpolation of the monthly published CPI. These government capital inflation-indexed bonds are currently the principle means of maintaining the real value of monetary items constant over time during inflation and deflation in the USD 2.4 trillion (2013) global market for these sovereign bonds.
The Daily CPI is used as the Daily Index under Capital Maintenance in Units of Constant Purchasing Power during low and high inflation and deflation.
The Daily CPI is always available in advance. It can be available up to a month and a half in advance. There are never any surprises with the Daily CPI. The Daily CPI is daily inflation always known in advance.
The use of the Daily CPI was suggested to the IASB to be used in the future IFRS regarding Financial Reporting in High Inflationary Economies.
Inflation-indexing all monetary items would remove the total effect of inflation (not actual inflation) from the entire economy. Inflation only affects the real value of monetary items. Inflation has no effect on the real value of non-monetary items. The same holds true for deflation.
Nicolaas Smith Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Sunday 13 October 2013
According to the IASB financial reporting has NO EFFECT on the economy
Financial reporting ALWAYS AFFECTS the economy since the economy is made up of economic entities and economic items and an entity has to choose an accounting model which is determined by the capital maintenance concept and measurement bases chosen as per the Conceptual Framework.
Most entities choose the financial capital maintenance in nominal monetary units (Historical Cost) concept.
Both IFRS and US GAAP also authorise capital maintenance in units of constant purchasing power at all levels of inflation and deflation.
The IASB staff, under the direction of Michael Stewart, are currently guiding the IASB Interpretations Commitee to ban financial capital maintenance in units of constant purchasing power during low and high inflation and deflation.
Accounting is a measurement instrument according to David Mosso.
IASB view
According to the IASB "financial reporting has NO EFFECT on the economy" as stated by Michael Stewart, Director of Implementation Activities at the IASB, on 8 January 2013 in London.
Nicolaas Smith Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Difference between gaap and GAAP
GAAP
Generally Accepted Accounting Principles (GAAP) are fiat-based code-law criteria.
Gaap
Generally accepted accounting principles (gaap) are market-based common-law criteria, under which individuals are held to widely accepted standards of behavior.
To what extent are the accounting standards promulgated by the FASB a codification of what constitutes generally accepted accounting principles ( a market-based common-law criterion, under which individuals are held to widely accepted standards of behavior ) as distinct from Generally Accepted Accounting Principles ( a fiat-based code-law criterion) ?
Ball R 2008 What is the Actual Economic Role of Financial Reporting? Accounting Horizons, Vol 22, No 4, p4
Nicolaas Smith Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Subscribe to:
Posts (Atom)