Viparo on 2008/05/29 09:10:40 PM - Nicolaas
Finweek 29 May 2008
Nope, lost you after "when"
Friday, 30 May 2008
CAs please drop the stable measuring unit assumption
Nicolaas Smith on 2008/05/29 09:01:15 PM - CAs please drop the stable measuring unit assumpti
Finweek 29 May 2008
When CAs drop their assumption that there is no inflation when they account constant items like salaries, wages, taxes, retained income, issued share capital, etc they will guarantee the achievement of a 0% inflation target in the real economy for an indefinite period of time. http://realvalueaccounting.blogspot.com/
Finweek 29 May 2008
When CAs drop their assumption that there is no inflation when they account constant items like salaries, wages, taxes, retained income, issued share capital, etc they will guarantee the achievement of a 0% inflation target in the real economy for an indefinite period of time. http://realvalueaccounting.blogspot.com/
0% inflation in the real economy = value stability
Nicolaas Smith on 2008/05/29 08:53:53 PM - 0% inflation in the real economy = value stability
Finweek 29 May 2008
0% inflation in the real economy is value stability in the real economy when SA Chartered Accountants abondon their stable measuring unit assumption. CAs assume that there is no inflation (they just simply ignore the 11.1% current inflation - can you believe that!!!!!!) when they account constant items like salaries, wages, rents, taxes, retained income, issued share capital etc.
They thus destroy billions of Rand in constant item real value this year and every year as long as they keep on assuming there is not inflation only for this purpose. When they abondon the stable measuring unit assumption they will maintain billions of Rand in the SA real economy instead of destroying it.
By abondoning the stable measuring unit assumption - no one stops them from doing that - SA Chartered Accountants will guarantee 0% inflation in the real economy. We will still have 11.1% cash inflation in the monetary economy.
Finweek 29 May 2008
0% inflation in the real economy is value stability in the real economy when SA Chartered Accountants abondon their stable measuring unit assumption. CAs assume that there is no inflation (they just simply ignore the 11.1% current inflation - can you believe that!!!!!!) when they account constant items like salaries, wages, rents, taxes, retained income, issued share capital etc.
They thus destroy billions of Rand in constant item real value this year and every year as long as they keep on assuming there is not inflation only for this purpose. When they abondon the stable measuring unit assumption they will maintain billions of Rand in the SA real economy instead of destroying it.
By abondoning the stable measuring unit assumption - no one stops them from doing that - SA Chartered Accountants will guarantee 0% inflation in the real economy. We will still have 11.1% cash inflation in the monetary economy.
Saturday, 24 May 2008
Accounting for Inflation
Financial Mail 09 May 2008
Accounting for inflation
Nicolaas Smith, Lisbon
DA deputy finance spokesman Dion George states: "Reserve Bank governor Tito Mboweni recently hiked interest rates, despite real concern over the impact this will have on sustainable economic growth" (Letters April 25).
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.
There is an option that would make this destruction of the SA real economy by inflation or hyperinflation impossible - if we so choose.
We have to remember that inflation is the destruction of value in monetary and constant items over time.
Inflation has two components: a monetary component - cash inflation - and a non monetary component - historical cost accounting inflation. We can stop the second component completely, which will stop the destruction of real value in the real economy completely.
The 10,6% (March) cash inflation was caused by excessive (21%) money supply growth in SA. What causes excessive money supply is a complex economic process that should be dominated by Mboweni and the Bank as it is dominated by central banks elsewhere.
Historical cost accounting inflation is caused by the combination of 10,6% inflation and SA accountants' implementation of the stable measuring unit assumption (a historical cost accounting practice) throughout the SA economy.
The destruction of real value in the real economy by SA accountants will stop when they stop their assumption that the rand is perfectly stable only for the purpose of accounting constant items never or not fully updated.
We will still have 10,6% cash inflation in the monetary economy - all else being equal - but we will have 0% inflation in the real economy with an (as for now unknown) increase in GDP and sustainable economic growth in SA.
Inflation would then have only a monetary component, namely, cash inflation.
No-one stops us from revoking the stable measuring unit assumption.
The historical cost accounting model is not required by SA law, or by Generally Accepted Accounting Practice or the International Accounting Standards Board.
Thursday, 22 May 2008
Inflation value destruction in South Africa
March 2008 CPI 153.9 Annual inflation 10.6%
Real value destroyed in 2008
1. By 10.6% cash inflation in monetary items, that is, in M3: 10.6% of R1.751361 trillion = R185 billion per annum
2. Unwittingly by SA Chartered Accountants: 10.6% Historical Cost Accounting inflation in the real value of Retained Income of companies listed on the Johannesburg Stock Exchange = Billions per annum. Actual amount in the process of being calculated.
3. Unwittingly by SA Chartered Accountants in other constant items never or not fully updated = Billions per annum. Value unknown.
Real value destroyed in 2008
1. By 10.6% cash inflation in monetary items, that is, in M3: 10.6% of R1.751361 trillion = R185 billion per annum
2. Unwittingly by SA Chartered Accountants: 10.6% Historical Cost Accounting inflation in the real value of Retained Income of companies listed on the Johannesburg Stock Exchange = Billions per annum. Actual amount in the process of being calculated.
3. Unwittingly by SA Chartered Accountants in other constant items never or not fully updated = Billions per annum. Value unknown.
Accountants eroding real value
Accountants are eroding real value in South Africa each and every day with their assumption that the Rand is perfectly stable only when they account constant items like salaries, wages, taxes, retained income, issued share capital, etc in SA.
That is, they assume that changes in the Rand´s general purchasing power are not sufficiently important to require adjustments to the basic financial statements with regard to these constant items.
Accountants thus destroy hundreds of billions of Rand in real value in SA each and every year.
That will benefit everyone in SA for an indefinite period of time.
© 2005-2010 by Nicolaas J Smith. All rights reserved
No reproduction without permission.
That is, they assume that changes in the Rand´s general purchasing power are not sufficiently important to require adjustments to the basic financial statements with regard to these constant items.
Accountants thus destroy hundreds of billions of Rand in real value in SA each and every year.
That will benefit everyone in SA for an indefinite period of time.
© 2005-2010 by Nicolaas J Smith. All rights reserved
No reproduction without permission.
Congratulations Mr Mboweni
I wish to congratulate Mr Mboweni for admitting that 10.6% inflation is not consistent with price stability. Price stability is a year-on-year increase in the CPI of 0%. A high degree of price stability is a year-on-year increase in the CPI of 2%.
10.6% South African inflation destroys R185 billion per annum in the real value of M3 valued at R1.751 trillion. 6% inflation will destroy R105 billion in M3 while 3% inflation will destroy R52.5 billion in M3 real value per annum. I support an upper limit of 2% inflation in SA that will destroy R35 billion in M3 real value per annum.
When SA Chartered Accountants stop assuming that the Rand is perfectly stable only when they account constant items (e.g. retained income) they will guarantee 0% inflation in the real economy for an indefinite period of time.
The benefits of 0% inflation in the real economy can scarcely be overstimated, especially as these are, in principle, unlimited in duration and accrue year after year.
Instead CAs are currently destroying billions of Rand each and every year in retained income real value in all SA companies.
10.6% South African inflation destroys R185 billion per annum in the real value of M3 valued at R1.751 trillion. 6% inflation will destroy R105 billion in M3 while 3% inflation will destroy R52.5 billion in M3 real value per annum. I support an upper limit of 2% inflation in SA that will destroy R35 billion in M3 real value per annum.
When SA Chartered Accountants stop assuming that the Rand is perfectly stable only when they account constant items (e.g. retained income) they will guarantee 0% inflation in the real economy for an indefinite period of time.
The benefits of 0% inflation in the real economy can scarcely be overstimated, especially as these are, in principle, unlimited in duration and accrue year after year.
Instead CAs are currently destroying billions of Rand each and every year in retained income real value in all SA companies.
Monday, 19 May 2008
IAS 29 doubly flawed
It is not only flawed in it´s definition of monetary items as being money held and "items to be received or paid in money" (everything is received or paid in money - both monetary and non-monetary items) but also when it states that Retained Income in the first period of restatement is the balancing figure after restatement of all other balance sheet items.
This is a very serious mistake by the IASB.
Retained Income is a constant real value non-monetary item like Issued Share Capital and should be restated at the daily parallel rate or daily index rate in hyperinflationary economies and at the monthly inflation rate in non-hyperinflationary economies from the date it came about to today´s date.
The book "RealValueAccounting.Com - The next step in our fundamental model of accounting" which is available as a free download from a link on this blog, followed the flawed IASB approach.
This will be corrected in the new book: "Killing the real economy - South African Chartered Accountants unwittingly destroy real value on a massive scale." Unpublished.
This is a very serious mistake by the IASB.
Retained Income is a constant real value non-monetary item like Issued Share Capital and should be restated at the daily parallel rate or daily index rate in hyperinflationary economies and at the monthly inflation rate in non-hyperinflationary economies from the date it came about to today´s date.
The book "RealValueAccounting.Com - The next step in our fundamental model of accounting" which is available as a free download from a link on this blog, followed the flawed IASB approach.
This will be corrected in the new book: "Killing the real economy - South African Chartered Accountants unwittingly destroy real value on a massive scale." Unpublished.
Saturday, 17 May 2008
Historical Cost Accounting versus revoking the stable measuring unit assumption in SA
Under HCA
1. Variable items are valued correctly in terms of SA Generally Accepted Accounting Practice and International Financial Reporting Standards. No value is being destroyed by SA Chartered Accountants implementing the above or automatically by the combination of inflation and the HCA model.
2. 10.6% inflation destroys R185 billion per annum in R1.751 trillion M3 real value. 2% inflation would have only destroyed R35 billion. Think about that Mr Mboweni. [Tito, your job is most probably worth R150 billion per annum at the moment - and rising. :) ]
3. Chartered Accountants most probably (actual value in the process of being calculated) destroy another R60 billion (estimate) per annum in constant item real value because they assume the Rand is stable (a very silly and a very costly assumption) only when they account constant items never of not fully updated. At 2% inflation they would only destroy R35 billion per annum.
Buy the ebook for $2.99 or £1.53 or €2.68
Revoking the stable measuring unit assumption
A. Variable items would be valued correctly by CA´s exactly as in 1 above.
B. 10.6% inflation will destroy R185 billion per annum in R1.751 trillion M3 real value exactly the same as in 2 above.
C. Chartered Accountants will not destroy any real value in constant items. They will maintain R185 billion (estimated value) per annum in constant items real value in the case of 10.6% cash inflation instead of destroying it. This is the same as investing R60 billion per annum in constant items in the SA economy for an indefinite period of time - all else being equal. There will be 0% inflation in the real economy. The benefits to GDP and the economic growth rate will be unlimited in duration and accrue year after year.
It will result in the automatic monthly updating in terms of the Consumer Price Index of salaries, wages, rents, fees, royalties, retainers, issued share capital, retained income, share premium and share discount account balances, trade debtors, trade creditors, income taxes, company taxes, value added taxes and all profit and loss account items, etc in South Africa´s high inflationary economy.
The above items will be updated on a daily basis in terms of a daily index rate or a daily parallel hard currency rate in a hyperinflationary economy like Zimbabwe´s - as it was done for 30 years by Brazil.
Buy the ebook for $2.99 or £1.53 or €2.68
It will be completely impossible for SA Chartered Accountants to unwittingly carry on with their current destruction of the SA real economy.
1. Variable items are valued correctly in terms of SA Generally Accepted Accounting Practice and International Financial Reporting Standards. No value is being destroyed by SA Chartered Accountants implementing the above or automatically by the combination of inflation and the HCA model.
2. 10.6% inflation destroys R185 billion per annum in R1.751 trillion M3 real value. 2% inflation would have only destroyed R35 billion. Think about that Mr Mboweni. [Tito, your job is most probably worth R150 billion per annum at the moment - and rising. :) ]
3. Chartered Accountants most probably (actual value in the process of being calculated) destroy another R60 billion (estimate) per annum in constant item real value because they assume the Rand is stable (a very silly and a very costly assumption) only when they account constant items never of not fully updated. At 2% inflation they would only destroy R35 billion per annum.
Buy the ebook for $2.99 or £1.53 or €2.68
Revoking the stable measuring unit assumption
A. Variable items would be valued correctly by CA´s exactly as in 1 above.
B. 10.6% inflation will destroy R185 billion per annum in R1.751 trillion M3 real value exactly the same as in 2 above.
C. Chartered Accountants will not destroy any real value in constant items. They will maintain R185 billion (estimated value) per annum in constant items real value in the case of 10.6% cash inflation instead of destroying it. This is the same as investing R60 billion per annum in constant items in the SA economy for an indefinite period of time - all else being equal. There will be 0% inflation in the real economy. The benefits to GDP and the economic growth rate will be unlimited in duration and accrue year after year.
It will result in the automatic monthly updating in terms of the Consumer Price Index of salaries, wages, rents, fees, royalties, retainers, issued share capital, retained income, share premium and share discount account balances, trade debtors, trade creditors, income taxes, company taxes, value added taxes and all profit and loss account items, etc in South Africa´s high inflationary economy.
The above items will be updated on a daily basis in terms of a daily index rate or a daily parallel hard currency rate in a hyperinflationary economy like Zimbabwe´s - as it was done for 30 years by Brazil.
Buy the ebook for $2.99 or £1.53 or €2.68
It will be completely impossible for SA Chartered Accountants to unwittingly carry on with their current destruction of the SA real economy.
IAS 29 versus revoking the stable measuring unit assumption.
Restatement in terms of the hyperinflation rate as required by International Accounting Standard IAS 29 Financial Reporting in Hyperinflationary Economies is simply the restatement of Historical Cost Accounting financial reports with the intention of making them more meaningful in a hyperinflationary economy like Zimbabwe.
Restated values become the actual new real values when the restated financial reports are accepted by a country´s tax authorities for the purpose of calculating annual taxes due.
The restated values will not be actual real values when the tax authorities do not accept them for the purpose of calculating annual taxes due.
IAS 29 has no effect at all on the hyper destruction of the real economy in a hyperinflationary country because restatement is not done on a daily basis in terms of a dialy index rate or a daily parallel hard currency rate. IAS 29 is almost a complete failure. It can stop the hyper destruction of the real economy in a country with hyperinflation if it required the daily restatement of all non-monetary items.
Revoking the stable measuring unit assumption will change the current accounting and economic paradigm from the Historical Cost paradigm to the Real Value paradigm in low, high and hyperinflationary economies.
The stable measuring unit assumption can be revoked in a single company, group of companies, single economy, economic region or world wide.
It will replace the Historical Cost Accounting model with the Real Value Accounting model. The current HCA model automatically becomes the RVA model only at zero inflation.
It will stop the perennial destruction of hundreds of billions of Euros of real value in the real economy world wide.
It will result in the automatic monthly updating in terms of the Consumer Price Index of salaries, wages, rents, fees, royalties, retainers, issued share capital, retained income, share premium and share discount account balances, trade debtors, trade creditors, income taxes, company taxes, value added taxes and all profit and loss account items, etc in non-hyperinflationary economies.
The above items will be updated on a daily basis in terms of a daily index rate or a daily parallel hard currency rate in a hyperinflationary economy.
It will result in 0% inflation only in the real economy with continued cash inflation in the cash economy.
The stable measuring unit assumption is a Historical Cost Accounting principle implemented by Chartered Accountants only for the purpose of valuing the above constant value items never or not fully updated.
Chartered Accountants unwittingly destroy the real economy in this manner.
Restated values become the actual new real values when the restated financial reports are accepted by a country´s tax authorities for the purpose of calculating annual taxes due.
The restated values will not be actual real values when the tax authorities do not accept them for the purpose of calculating annual taxes due.
IAS 29 has no effect at all on the hyper destruction of the real economy in a hyperinflationary country because restatement is not done on a daily basis in terms of a dialy index rate or a daily parallel hard currency rate. IAS 29 is almost a complete failure. It can stop the hyper destruction of the real economy in a country with hyperinflation if it required the daily restatement of all non-monetary items.
Revoking the stable measuring unit assumption will change the current accounting and economic paradigm from the Historical Cost paradigm to the Real Value paradigm in low, high and hyperinflationary economies.
The stable measuring unit assumption can be revoked in a single company, group of companies, single economy, economic region or world wide.
It will replace the Historical Cost Accounting model with the Real Value Accounting model. The current HCA model automatically becomes the RVA model only at zero inflation.
It will stop the perennial destruction of hundreds of billions of Euros of real value in the real economy world wide.
It will result in the automatic monthly updating in terms of the Consumer Price Index of salaries, wages, rents, fees, royalties, retainers, issued share capital, retained income, share premium and share discount account balances, trade debtors, trade creditors, income taxes, company taxes, value added taxes and all profit and loss account items, etc in non-hyperinflationary economies.
The above items will be updated on a daily basis in terms of a daily index rate or a daily parallel hard currency rate in a hyperinflationary economy.
It will result in 0% inflation only in the real economy with continued cash inflation in the cash economy.
The stable measuring unit assumption is a Historical Cost Accounting principle implemented by Chartered Accountants only for the purpose of valuing the above constant value items never or not fully updated.
Chartered Accountants unwittingly destroy the real economy in this manner.
Friday, 16 May 2008
Stop Chartered Accountants from destroying the real economy and everyone will gain.
Get Chartered Accountants to admit that the Rand is not stable and that changes in its general purchasing power are sufficiently important to require adjustments to the basic financial statements and the following will happen automatically:
1. Salaries, wages, taxes, issued share capital, retained income and all constant items will be updated monthly with the change in the CPI;
2. CA´s will stop destroying hundreds of billions of Rand in real value in the real economy each and every year(how can they sleep at night?);
3. GDP and sustainable economic growth will increase;
4. It will be IMPOSSIBLE for inflation and hyperinflation to destroy the SA real economy like it did in Zimbabwe.
1. Salaries, wages, taxes, issued share capital, retained income and all constant items will be updated monthly with the change in the CPI;
2. CA´s will stop destroying hundreds of billions of Rand in real value in the real economy each and every year(how can they sleep at night?);
3. GDP and sustainable economic growth will increase;
4. It will be IMPOSSIBLE for inflation and hyperinflation to destroy the SA real economy like it did in Zimbabwe.
Wednesday, 14 May 2008
Higher interest rates
"The benefits of price stability, on the other hand, can scarcely be overestimated, especially as these are, in principle, unlimited in duration and accrue year after year." Deutsche Bundesbank 1996 Annual Report, Page 83.
Only if higher interest rates bring down inflation will it benefit the man in the street - and also attract foreign investment.
Price stability is a year on year increase in the CPI of 0%. A HIGH DEGREE of price stability is a year on year increase in the CPI of 2%.
SA should have an upper limit for cash or monetary inflation of 2% like the Euro and the USD - AND SA should stop the stable measuring unit assumption by an act of parliament which will result in 0% inflation ONLY in the REAL economy and prevent the destruction of the SA real economy by inflation or hyperinflation.
One of the basic principles in accounting is “The Measuring Unit principle: The unit of measure in accounting shall be the base money unit of the most relevant currency.
This principle also assumes the unit of measure is stable; that is, changes in its general purchasing power are not considered sufficiently important to require adjustments to the basic financial statements.” Paul H. Walgenbach, Norman E. Dittrich and Ernest I. Hanson, (1973), Financial Accounting, New York: Harcourt Brace Javonovich, Inc. Page 429.
Only if higher interest rates bring down inflation will it benefit the man in the street - and also attract foreign investment.
Price stability is a year on year increase in the CPI of 0%. A HIGH DEGREE of price stability is a year on year increase in the CPI of 2%.
SA should have an upper limit for cash or monetary inflation of 2% like the Euro and the USD - AND SA should stop the stable measuring unit assumption by an act of parliament which will result in 0% inflation ONLY in the REAL economy and prevent the destruction of the SA real economy by inflation or hyperinflation.
One of the basic principles in accounting is “The Measuring Unit principle: The unit of measure in accounting shall be the base money unit of the most relevant currency.
This principle also assumes the unit of measure is stable; that is, changes in its general purchasing power are not considered sufficiently important to require adjustments to the basic financial statements.” Paul H. Walgenbach, Norman E. Dittrich and Ernest I. Hanson, (1973), Financial Accounting, New York: Harcourt Brace Javonovich, Inc. Page 429.
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