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Friday 16 April 2010

Money illusion and the E-Type Jag

Definition: Money illusion is the mistaken belief that money is stable – as in fixed – in real value over time.

Money illusion is primarily evident in low inflation countries. In hyperinflationary countries there is absolutely no money illusion as far as the hyperinflationary national currency is concerned. Everyone knows as a fact that the local hyperinflationary currency loses value day by day and even hour by hour. In low inflationary countries people are vaguely aware that money loses value over a long period of time. Money in a low inflationary economy is used as if its real value is completely stable over the short term. That is money illusion.

Money illusion is evident everywhere in low inflationary economies. TV presenters reporting on historical events regularly quote Historical Cost values as the most natural thing to do. “Marble Arch was built for 10 000 Pounds” the TV reporter states with sincere knowledge that his audience is being well entertained with correct facts and figures. It is a figure very difficult to instantaneously value today. 10 000 British Pounds was the original cost in historical terms but we live today and absolutely no-one can immediately imagine what the construction cost of Marble Arch is in current terms. It is the same as saying that something cost one Pound 300 years ago. It is impossible to immediately value it now. We live now and not 300 years in the past. We don’t know what some-one could have bought for a Pound 300 years ago. People in the United Kingdom know what a person can buy for one Pound now – and the Pound’s value changes month after month.

Companies report an unending stream of information about their performance and results. Sales increased by 5 per cent over last year’s figures, for example. Are these historical cost comparisons or real value comparisons? It is more never than hardly ever stated.

Money illusion is very, very common in our low inflationary economies. Another example: The BBC ran a program about the fantastic E-Type Jag. The presenter stated that one of the many reasons why the E-type Jag - the best car ever, according to the presenter - was such a success, was its original nominal price of 2 500 Pounds at the time of its first introduction into the market. Towards the end of the program it is then stated that a number of years later these same original E-Type Jags sold at a nominal price at that time of 25 000 Pounds. It is thus implied to be 10 times more than the original price of 2 500 Pounds. In nominal terms, yes. We all agree. Certainly not in real terms and we are interested in real values. Nominal profits - however fantastic they may look - are misleading the longer the time period and the higher the rate of inflation or hyperinflation in the transaction currency during the time period involved.

In this example we are all led to believe that the E-Type Jag was sold at a real value 10 times its original real value. It is the notorious money illusion at work. The real value in a sale like that certainly would not be 10 times the original real value once the original nominal price is adjusted for inflation in the British Pound over the years in question.

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith

Thursday 15 April 2010

The net monetary gains and losses puzzle

Entities with net monetary assets (weighted average of monetary assets greater than weighted average of monetary liabilities) over a period of time, e.g. a year, will suffer a net monetary loss (less real value owned/more real value – real assets – destroyed) during inflation – all else being equal. Companies with net monetary liabilities (weighted average of monetary liabilities greater than the weighted average of monetary assets) will experience a net monetary gain (less real value owed/more real liabilities destroyed) during inflation – ceteris paribus.


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Net monetary gains and losses are calculated and accounted during hyperinflation as required by IAS 29 Financial Reporting in Hyperinflationary Economies and with the measurement of financial capital maintenance in units of constant purchasing power in terms of the IASB´s Framework, Par 104 (a) during low inflation and deflation. Net monetary gains and losses are not required to be computed under the traditional Historical Cost Accounting model although it can be done.

“Computing the gains or losses from holding monetary items can be done and the information disclosed when the books are maintained on a historical-cost basis.”

Harvey Kapnick, Chairman of Arthur Anderson & Company, Value based accounting: Evolution or revolution, Saxe Lecture, 1976, Page 6. http://newman.baruch.cuny.edu/DIGITAL/saxe/saxe_1975/kapnick_76.htm

Net monetary gains and losses are constant real value non-monetary items once they are accounted in the income statement.

This omission to compute the gains and losses from holding monetary items is one of the consequences of the stable measuring unit assumption.

"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.

The practice of calculating and accounting net monetary gains and losses under hyperinflation and under low inflation and deflation only with the implementation of IFRS-authorized financial capital maintenance in units of constant purchasing power, but, not during the implementation of the traditional Historical Cost Accounting model is one of the various confounding generally accepted perplexities in the accounting profession.

Kindest regards

Buy the ebook for $2.99 or £1.53 or €2.68
Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith

Wednesday 14 April 2010

Cost of inflation to be deducted from profit before tax during low inflation

Deflation is a sustained absolute annual decrease in the general price level of goods and services. Deflation happens when the annual inflation rate falls below zero percent (a negative annual inflation rate), resulting in an increase in the real value of money. Deflation allows one to buy more goods with the same amount of money. This should not be confused with disinflation, a slow-down in the inflation rate (i.e. when inflation decreases, but still remains positive). Disinflation is a decrease in the rate of increase in the general price level. Inflation destroys the real value of money over time; conversely, deflation increases the real value of money in a national or regional economy over a period of time.

Inflation and deflation are both undesirable economic processes. As far as the understanding of inflation and deflation allows us at the moment, it can be stated that whatever level of deflation - however low - is to be avoided completely. A low level of inflation in an economy with financial capital maintenance in units of constant purchasing power as the fundamental model of accounting implementing IFRS or GAAP, is the best practice:

A low level of inflation to limit the destruction of real value in money and other monetary items; IFRS or GAAP for the correct valuation of variable items and, thirdly, financial capital maintenance in units of constant purchasing power for maintaining the real value of constant items constant during low inflation and deflation in all entities that at least break even without the requirement for extra capital or extra retained profits simply to maintain the existing real value of existing constant items constant.

Net monetary losses or gains would be calculated and accounted in the income statement during low inflation and deflation: basically, the cost of inflation would be accounted as a loss and deducted from profit before tax. Reducing the holding of monetary items (cash and other monetary items) over time would reduce the net monetary loss to a minimum during low inflation.

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith

Tuesday 13 April 2010

The inflation conundrum

Inflation is always and everywhere a monetary phenomenon.

Milton Friedman, A monetary history of the United States 1867 - 1960 (1963)

Inflation is a sustained annual increase in the general price level of goods and services in an economy. Prices are generally quoted in terms of money. When the general price level rises more than the annual increase in real value in the economy, each unit of the functional currency buys fewer goods and services; consequently, annual inflation only destroys the real value of each monetary medium of exchange unit evenly over time. Inflation has no effect on the real value of non-monetary items.

Annual inflation destroys real value evenly in money and other monetary items over time. There are, consequently, hidden monetary costs to some and monetary benefits to others from this destruction in purchasing power in monetary items that are assets to some while - a the same time - liabilities to others; e.g. the capital amount of loans. The debtor gains during inflation since he or she has to pay back the nominal value of the loan, the real value of which is being destroyed by annual inflation. The debtor pays back less real value during inflation. The creditor loses out because he or she receives the nominal value of the loan back, but, the real value paid back is lower as a result of inflation. Efficient lenders recover this loss in real value by charging interest at a rate higher than the expected inflation rate.

Increases in the general price level (inflation) destroy the real value of money (the functional currency) and other monetary items with an underlying monetary nature, e.g. the capital values of bonds and loans. However, inflation has no effect on the real value of variable real value non-monetary items (e.g. property, plant, equipment, cars, gold, inventories, finished goods, foreign exchange, etc) and constant real value non-monetary items (e.g. issued share capital, retained profits, capital reserves, other shareholder equity items, salaries, wages, rentals, pensions, trade debtors, trade creditors, taxes payable, taxes receivable, deferred tax assets, deferred tax liabilities, dividends payable, dividends receivable, etc).

Fixed constant real value non-monetary items never updated are effectively treated like monetary items by SA accountants implementing the stable measuring unit assumption as part of the HCA model during low inflation. SA accountants unknowingly destroy their real values at a rate equal to the rate of inflation because they choose to measure them in nominal monetary units during low inflation. Inflation destroys the real value of the Rand which is the nominal monetary unit of account in SA. This unknowing destruction in fixed constant items never maintained during low inflation will stop when SA accountants choose to measure financial capital maintenance in units of constant purchasing power. It is thus SA accountants´ choice of the HC accounting model and not inflation that is doing the destroying.

SA accountants choose to implement the stable measuring unit assumption during low inflation when they value constant items in fixed nominal monetary units. Accountants´ choice of implementing the stable measuring unit assumption instead of measuring constant items´ real values in units of constant purchasing power, as they have been authorized to do in the Framework, Par 104 (a) twenty one years ago, results in the real values of these fixed constant items being destroyed at a rate equal to the rate of inflation when they are never updated during low inflation because inflation destroys the real value of money which is the monetary unit of account. Fixed constant items never updated are effectively treated as monetary items under HCA.

The extremely rapid destruction of the real value of money during hyperinflation is compensated for by the rejection of the stable measuring unit assumption in International Accounting Standard IAS 29 Financial Reporting in Hyperinflationary Economies. IAS 29, which has to be implemented during hyperinflation, requires all non-monetary items (variable items and constant items) to be measured in units of constant purchasing power. The stable measuring unit assumption is thus rejected in presentation of restated HC or CC financial statements but not in operation since the IASB still accepts HC or CC financial statements to be restated with the implementation of IAS 29 during hyperinflation.

The main measure of inflation in low inflation economies is the inflation rate, calculated from the annualized percentage change in a general price index - normally the Consumer Price Index. The correct measure of inflation is the parallel rate in hyperinflationary economies - where a parallel rate is in use. The CPI is completely impractical as a measure of inflation during hyperinflation when the aim is to stabilize the real economy during hyperinflation.

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith

Monday 12 April 2010

Money is the only unit of measure without a fundamental constant

Money is the greatest economic invention of all time. Money did not exist and was not discovered. Money was invented over a long period of time. Money is not the same as constant real value during inflation. Bank notes and coins are physical token instances of money. Money is a monetary item which is used as a monetary medium of exchange and serves at the same time as a monetary store of value and as the monetary unit of account for the accounting of economic activity in a country or a monetary union.

All three basic economic items - monetary items, variable items and constant items - are valued in terms of money. The European Monetary Union uses the Euro as its monetary unit. The US Dollar is the monetary unit most widely traded internationally. The Rand Common Monetary Area which includes South Africa, Namibia, Swaziland and Lesotho employs the Rand as the common monetary unit or functional currency.

An earlier form of money was commodity money; e.g. gold, silver and copper coins. Today money is generally fiat money created by government fiat or decree.

Money is a medium of exchange which is its main function. Without that function it can never be money. The historical development of money led it also to be used as a store of value and as the unit of measure to account the values of economic items.

Money is the only unit of measure that is not a stable value under all circumstances. Money is only perfectly stable in real value at zero per cent inflation. This has never been achieved over a sustainable period of time. All other units of measure are fundamentally stable units of measure, e.g. inch, centimetre, ounce, gram, kilogram, pound, etc.

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith

Friday 9 April 2010

Traditional Historical Cost Accounting is not an appropriate accounting policy for SA companies

Auditors state in the audit report that the directors´ responsibility for the financial statements includes selecting and applying appropriate accounting policies. The audit report also normally states under the Auditors´ Responsibility that an audit includes evaluating the appropriateness of accounting policies used in a company. So, both the directors and the auditors have a responsibility with regards to appropriate accounting policies for a company.

The implementation of the stable measuring unit assumption which is based on a fallacy and financial capital maintenance in nominal monetary units per se which is a fallacy during inflation and deflation means that the implementation of the HCA model is not an appropriate accounting policy for SA companies during inflation and deflation. The IASB already agrees that the stable measuring unit assumption and financial capital maintenance in nominal monetary units per se are not appropriate accounting policies in hyperinflationary economies.

IAS 29 Financial Reporting in Hyperinflationary Economies states that:

“In a hyperinflationary economy, reporting of operating results and financial
position in the local currency without restatement is not useful. Money loses
purchasing power at such a rate that comparison of amounts from transactions and other events that have occurred at different times, even within the same accounting period, is misleading.” IAS 29 Par 2

Traditional Historical Cost Accounting is not an appropriate accounting policy for SA companies when it results in SA accountants unknowingly, unnecessarily and unintentionally destroying about R200 billion in the real value of constant real value non-monetary items, e.g. retained profits never maintained with sufficient revaluable fixed assets each and every year in the SA non-monetary economy.

No-one can disprove that.

The remedy, namely, financial capital maintenance in units of constant purchasing power has been authorized in International Financial Reporting Standards in the Framework, Par 104 (a) twenty one years ago.

No-one can disprove that.
Copyright © 2010 Nicolaas J Smith

Thursday 8 April 2010

SA accountants have to state why they freely choose to destroy their companies´ capital and profits

Audited annual financial statements provided by SA companies which prepare them using the traditional Historical Cost basis, i.e., when the board of directors choose to measure financial capital maintenance in nominal monetary units instead of in units of constant purchasing power in terms of the IASB´s Framework, Par 104 (a), are compliant with IFRS, but, do not fairly present the financial position of the companies as required by Art. 29.1(b) of the Companies Act.

The SA Companies Act, No 71 of 2008, Article 29.1 (b) states:

“If a company provides any financial statements, including any annual financial statements, to any person for any reason, those statements must-

(b) present fairly the state of affairs and business of the company, and explain the transactions and financial position of the business of the company;”

Audited financial statements prepared under the HC basis do not fairly present the financial position of SA companies, as required by the Companies Act, when the directors do not:

(1) state in the annual financial statements that their choice of the traditional Historical Cost basis which includes the very destructive stable measuring unit assumption, destroys the real value of constant real value non-monetary items never maintained, at a rate equal to the annual rate of inflation;

(2) state that this includes the destruction of the real value of Shareholders´ Equity when the company does not have sufficient fixed assets that are or can be revalued via the Revaluation Reserve equal to the updated original real value of all contributions to Shareholders’ Equity under the HC basis;

(3) state the percentage and amount of Shareholders´ Equity that are not being maintained; i.e., the percentage and amount of Shareholders´ Equity that are subject to real value destruction at a rate equal to the annual inflation rate because of the directors´ choice, in terms of the Framework, Par 104 (a), to maintain financial capital maintenance in nominal monetary units instead of in units of constant purchasing power – both methods being compliant with IFRS;

(4) state the amount of real value destroyed during the last and previous financial years in Shareholders´ Equity and all other constant items never maintained because of the directors´ choice to implement the Historical Cost Accounting model;

(5) state the updated total amount of real value destroyed from the company’s inception to date in this manner in at least Shareholders´ Equity never maintained as described above;

(6) state the change in the updated real value of Shareholders´ Equity if the directors should decide – as they are freely allowed to do at any time - to measure financial capital maintenance in units of constant purchasing power instead of in nominal monetary units (which is a very popular accounting fallacy approved by the IASB) as authorized by the IASB in the Framework, Par 104 (a);

(7) state the directors´ estimate of the amount of real value to be destroyed by their implementation of the stable measuring unit assumption (which is based on another popular accounting fallacy approved by the IASB) during the following accounting year under the HC basis;

(8) state that the real value calculated in (7) represents the amount of real value the company would gain during the following accounting year and every year there after for an unlimited period of time – ceteris paribus - when the directors´ choose to measure financial capital maintenance in units of constant purchasing power – which is compliant with IFRS – as provided in the Framework, Par 104 (a) in 1989 which they are free to choose any time they decide;

(9) state the directors´ reason(s) for choosing financial capital maintenance in real value destroying nominal monetary units instead of in real value maintaining units of constant purchasing power in terms of the IASB´s Framework, Par 104 (a).


See Comment Letter 32 to the International Accounting Standard Board´s Exposure Draft: Management Commentary.

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith

Monday 5 April 2010

What to do if Malema´s "kill the Boer" leads to very high inflation in SA

If after the weekend killing of Eugene Terreblanche it so happens in the months and years to come that Julius Malema´s song "Kill the Boer" leads over time to the Rand weakening leading to much higher prices for imported goods resulting in an import inflation spiral in SA as well as Numsa and other trade unions demanding and getting 20% and higher wage increases SA may start to experience much higher rates of inflation.

If SA accountants just keep doing normal Historical Cost Accounting they will accelerate the downward course of the SA economy by destroying the SA real economy with traditional accounting like Zimbabwean accountants did over the last 30 years in that country.

Or, SA accountants can follow the Brazilian example and index all non-monetary prices by applying a daily index normally the US Dollar parallel rate daily. Brazil did that from 1964 to 1994. They had hyperinflation in their monetary economy but they stabilized their real economy with daily indexation. Indexation is in principle the same as implementing continuous financial capital maintenance in units of constant purchasing power as authorized in IFRS in the Framework, Par 104 (a) in 1989.


Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith

Thursday 1 April 2010

It is not inflation doing the destroying

Accountants simply assume that changes in the real value or constant purchasing power of the functional currency (money) are not sufficiently important for them to continuously measure financial capital maintenance in units of constant purchasing power as they have been authorized in IFRS in the Framework, Par 104 (a) in 1989 in low inflationary and deflationary economies for the purpose of valuing most constant items which they account as HC items; they measure them in nominal monetary units when they choose financial capital maintenance in nominal monetary units and implement the stable measuring unit assumption.

It is a generally accepted accounting practice for accountants not to apply the stable measuring unit assumption to the valuing of certain income statement constant items, namely salaries, wages, rentals, etc which they generally inflation-adjust annually. Accountants value all other income statement items and all balance sheet constant items in nominal monetary units when they implement financial capital maintenance in nominal monetary units during low inflation and deflation.

However, it is impossible to maintain the real value of financial capital constant with financial capital maintenance in nominal monetary units per se applying the stable measuring unit assumption during inflation and deflation. The measuring unit (money) is not perfectly stable during inflation and deflation. Inflation destroys the real value of money and other monetary items while deflation creates more real value in money and other monetary items over time. Sustainable zero annual inflation has never been achieved in the past and is not likely to be achieved any time soon in the future. Financial capital maintenance in nominal monetary units per se during inflation and deflation as authorized in IFRS in the Framework, Par 104 (a) is a popular accounting fallacy. IFRS should not be based on popular accounting fallacies as they currently are.

“Under a financial concept of capital, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the entity.” The Framework, Par 102

Shareholders´ Equity’s real value can only be maintained constant (excluding continuous additions of fresh capital or additional retained profits at the rate of inflation) with financial capital maintenance in nominal monetary units (traditional HCA) during low inflation when 100% of the updated original real value of all contributions to the Shareholders´ Equity balance are invested in revaluable fixed assets with an equivalent updated fair value – revalued or not. Valuing a revaluable fixed asset at HC (in nominal monetary units applying the stable measuring unit assumption) does not destroy its real value. It would normally be revalued when it is eventually sold or exchanged. It can also be revalued via the Revaluation Reserve before it is finally sold.

However, the portion of Shareholders´ Equity’s real value, under HCA, that is never maintained constant with sufficient revaluable fixed assets during low inflation, is unknowingly and unnecessarily being treated by accountants the same as a monetary item (e.g. cash). Accountants unknowingly, unnecessarily and unintentionally destroy its real value at a rate equal to the annual rate of inflation because they freely choose in terms of the Framework, Par 104 (a) - as authorized in IFRS - to implement financial capital maintenance in nominal monetary units and apply the stable measuring unit assumption during low inflation. Shareholders´ Equity´s value is expressed in terms of a monetary unit of account (the functional currency or money) and inflation destroys the real value of money.

It is not inflation doing the destroying: it is accountants´ free choice of financial capital maintenance in nominal monetary units when they implement their very destructive stable measuring unit assumption as authorized in IFRS in the Framework, Par 104 (a) during low inflation. When they freely choose the other option also authorized in the Framework, Par 104 (a), namely continuous financial capital maintenance in units of constant purchasing power, they would maintain the real value of all constant real value non-monetary items constant for an unlimited period of time – ceteris paribus – in all entities that at least break even whether these entities own revaluable fixed assets or not and without the requirement of additional capital or additional retained profits simply to maintain the existing constant real value of existing Shareholders´ Equity constant at all levels of inflation and deflation.

Inflation can only destroy the real value of money and other monetary items – nothing else. Inflation is always and everywhere a monetary phenomenon. Inflation has no effect on the real value of non-monetary items. Shareholders´ Equity is a constant real value non-monetary item.

“Purchasing power of non monetary items does not change in spite of variation in national currency value.”

Ümit GUCENME, Aylin P. ARSOY, Changes in financial reporting in Turkey, Historical Development of Inflation Accounting 1960 – 2005 (Bursa: Uludag University, 2005) 9.

http://www.mufad.org/index2.php?option=com_docman&task=doc_view&gid=9&Itemid=100

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith

Wednesday 31 March 2010

Constant and variable items defined in IFRS

The terms constant real value non-monetary items and variable real value non-monetary items are new specific terms for old concepts.

IFRS only define two economic items directly: monetary items (IAS 29 Par 12 and IAS 21 Par 8) and non-monetary items (IAS 29 Par 14). There are, however, three fundamentally different basic economic items in the economy:

1. Monetary items

2. Variable real value non-monetary items

3. Constant real value non-monetary items

Constant real value non-monetary items and variable real value non-monetary items are defined indirectly in IFRS.

According to the Framework, Par 104 (a) financial capital maintenance can be measured in units of constant purchasing power during low inflation and deflation. Although IAS 29 is only to be applied during hyperinflation, it defines monetary and non-monetary items in general. According to IAS 29 Par 12: “Monetary items are not restated because they are already expressed in terms of the monetary unit current at the balance sheet date.”

IAS 29 Par 14 defines non-monetary items as all items that are not monetary items. Since monetary items are not restated only non-monetary items can thus be measured in units of constant purchasing power or inflation-adjusted or restated or updated. As such, non-monetary items measured in units of constant purchasing power during low inflation and deflation are thus constant real value non-monetary items; e.g. all income statement items, all items in shareholders´ equity, trade debtors, trade creditors, taxes payable and receivable, etc.

Non-monetary items that are not measured in units of constant purchasing power during low inflation and deflation are thus variable real value non-monetary items since they have variable real values over time and are valued in terms of specific IFRS.

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith

Tuesday 30 March 2010

Basis for Historical Cost Accounting

“In most countries, primary financial statements are prepared on the historical cost basis of accounting without regard either to changes in the general level of prices or to increases in specific prices of assets held, except to the extent that property, plant and equipment and investments may be revalued.” IAS 29 Par 6. HCA is the generally accepted traditional basic accounting model used by most entities during low inflation and deflation.

IFRS only define two economic items: monetary items (IAS 29 Par 12 and IAS 21 Par 8) and non-monetary items (IAS 29 Par 14). There are, however, three fundamentally distinct basic economic items in the economy as defined above. Constant real value non-monetary items and variable real value non-monetary items are defined indirectly in IFRS. According to the Framework, Par 104 (a) financial capital maintenance can be measured in units of constant purchasing power during low inflation and deflation. Although IAS 29 is only to be applied during hyperinflation, it defines monetary and non-monetary items. According to IAS 29 Par 12: “Monetary items are not restated because they are already expressed in terms of the monetary unit current at the balance sheet date.”

IAS 29 Par 14 defines non-monetary items as all items that are not monetary items. Since monetary items are not restated only non-monetary items can thus be measured in units of constant purchasing power or inflation-adjusted or restated or updated during inflation and deflation. As such, non-monetary items measured in units of constant purchasing power during low inflation and deflation are thus constant real value non-monetary items; e.g. all income statement items, all items in shareholders´ equity, trade debtors, trade creditors, taxes payable and receivable, etc. Non-monetary items that are not measured in units of constant purchasing power during low inflation and deflation are thus variable real value non-monetary items since they have variable real values over time and are valued in terms of specific IFRS.

Non-monetary items also include Historical Cost items based on the stable measuring unit assumption under the HCA model.

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.” ²

Inflation is always and everywhere a monetary phenomenon. Milton Friedman. Money (the functional currency) is not perfectly stable during inflation and deflation. Inflation destroys the real value of money and other monetary items at the rate of inflation as indicated by the change in the Consumer Price Index. Sustainable zero annual inflation has never been achieved in the past and is not likely to be achieved any time soon in the future.

HC accountants, on the other hand, simply assume that the functional currency (money) is perfectly stable in low inflationary and deflationary economies only for the purpose of valuing balance sheet constant items which they account as HC items; they measure them in nominal monetary units implementing financial capital maintenance in nominal monetary units. In conformity with world practice they do not apply this assumption to the valuing of certain Income Statement constant items, namely salaries, wages, rentals, etc which they inflation-adjust annually. HC accountants value other income statement items in nominal monetary units, i.e. at HC. HC accountants do not regard changes in the general purchasing power or real value of money to be sufficiently important during low inflation and deflation to continuously measure financial capital maintenance in units of constant purchasing power as they have been authorized in IFRS in the Framework, Par 104 (a) in 1989. They generally choose to implement financial capital maintenance in nominal monetary units, also authorized in IFRS in the Framework, Par 104 (a). However, it is impossible to maintain the real value of financial capital constant by measuring financial capital maintenance in nominal monetary units per se during inflation and deflation. Financial capital maintenance in nominal monetary units per se during inflation and deflation is a popular accounting fallacy.

This led accountants to choose to implement the traditional Historical Cost Accounting model during non-hyperinflationary periods where under they select to maintain the stable measuring unit assumption (also IFRS-approved and also based on a fallacy) for an unlimited period of time during indefinite low inflation. They value both variable items stated at HC in terms of IFRS, as well as constant items also stated at HC in terms of the HCA model, in nominal monetary units during non-hyperinflationary periods. Both HC variable and HC constant items are thus considered by accountants to be simply HC non-monetary items.

SA accountants thus treat the portion of Shareholders´ Equity in SA companies not maintained constant by investment in sufficient revaluable fixed assets as a monetary item. They thus unknowingly destroy its real value at a rate equal to the annual rate of inflation amounting in total to about R200 billion per annum in the SA real economy.

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith

Monday 29 March 2010

Is your accountant looking after your capital?

No, he or she is not!

It is all actually quite simple to understand: your accountant ASSUMES there is NO inflation (that the Rand is PERFECTLY stable) ONLY when he values constant real value non-monetary items, e.g. the actual capital you used to start your company as it is currently accounted in your balance sheet. I assume you have a small business and you don´t own any revaluable fixed assets in your business. Even if you have the biggest business on the JSE you most probably did not invest 100% of all original contributions to your shareholders´ equity in revaluable fixed assets now with an equivalent updated fair value equal to the updated real value of your equity. In doing that he treats your capital the same as CASH and he unknowingly destroys the real value of your capital because he ASSUMES the Rand is perfectly stable ONLY for this purpose. He will never ever advise you to keep your company cash in the bank at zero interest - but, he is doing that with your capital in your company. He and all other accountants.

He has been authorized 21 years ago to update your capital during LOW inflation. He doesn´t do it because he thinks (because everyone in the world thinks) that inflation is doing the destroying. He and they are wrong. Inflation can only destroy the real value of the Rand - nothing else. Inflation has no effect on the real value of non-monetary items: your capital is a constant real value non-monetary item.

It is not inflation doing the destroying: he is unknowingly doing the destroying because he has been authorized 21 years ago to value your capital in UNITS OF CONSTANT PURCHASING POWER (to inflation-adjust your capital) during LOW inflation.

When he values your capital AS WELL AS ALL OTHER constant real value non-monetary items in your business (ONLY constant items) in UNITS OF CONSTANT PURCHASING POWER he will maintain the constant real value of your capital constant forever - as long as your business breaks even forever - whether you have revaluable fixed assets in your business or not. You are not required to pay in more money for extra capital or retain more profits simply to keep the existing real value of your existing capital constant. It is automatically done when he updates ALL constant items (ONLY constant items, but, ALL of them - including trade debtors) in your business - as long as you break even in your business.

It is not the same as inflation, but, it is SIMILAR to him arranging ZERO INFLATION in all your constant items: e.g. your capital.

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith

IFRS define three concepts of Capital Maintenance


FRS authorized financial capital maintenance in units of constant purchasing power in the original Framework (1989), Par. 104 (a) which means that there are three concepts of capital maintenance authorized in IFRS since 1989.

Buy the ebook.


Copyright © 2010 Nicolaas J Smith

Saturday 27 March 2010

Inflation is not a solution

According to The Economist the merits of inflation as a solution to the rich world’s problems are easily overstated.

Inflation is always and everywhere a monetary phenomenon: Milton Friedman. Inflation only destroys the real value of money and other monetary items, e.g. bonds – nothing else. Inflation has no effect on the real value of non-monetary items. It is impossible for inflation per se to destroy the real value of any non-monetary item.

Banks´ and companies´ capital and profits are constant real value non-monetary items. Constant items, e.g. shareholders´ equity, trade debtors, trade creditors, taxes payable, taxes receivable, all items in the income statement, etc, have constant real non-monetary values over time. Inflation can thus not destroy the real value of banks´ and companies´ capital and profits.

However, everybody believes the fallacy that the erosion of banks´ and companies´ capital and profits is caused by inflation, including the IASB, FASB and most accountants. They and other accounting authorities, accounting professors and lecturers thus clearly know and admit that real value is currently being destroyed in banks´ and companies´ capital and profits. Everyone mistakenly think it is inflation doing the destroying.

It is not inflation, but, accountants´ choice of financial capital maintenance in nominal monetary units, another fallacy, as authorized by the IASB in the Framework, Par 104 (a) in 1989 which states: “Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power” which is doing the destroying. Financial capital maintenance in nominal monetary units is the 700 year old, generally accepted, traditional Historical Cost Accounting model which includes accountants´ very destructive stable measuring unit assumption based on the fallacy that changes in the purchasing power of the monetary unit of account is not sufficiently important during low inflation to require them to measure financial capital maintenance in units of constant purchasing power as authorized by the IASB in the Framework, Par 104 (a) in 1989. It is impossible to maintain the real value of financial capital constant in nominal monetary units per se during low inflation and deflation as stated by the IASB.

Accountants unknowingly and unnecessarily destroy the portion of the real value of banks´ and companies´ capital and profits generally never maintained with sufficient revaluable fixed assets under HCA during low inflation at a rate equal to the annual rate of inflation amounting to hundreds of billions of Euros (probably much more) in the world economy every year. Everyone mistakenly thinks it is inflation doing the destroying. Accountants would knowingly stop this destruction and boost the world economy by hundreds of billions of Euros (probably much more) every year with financial capital maintenance in units of constant purchasing power as authorized by the IASB in the Framework, Par 104 (a) 21 years ago – for an unlimited period of time in all entities that at least break even – ceteris paribus – without extra money or extra retained profits to maintain the existing real value of capital and profits. They would maintain existing constant item real values by not destroying existing values with their very destructive stable measuring unit assumption in a double entry accounting model in real value maintaining units of constant purchasing power instead of in real value destroying nominal monetary units during inflation.

The real value of the portion of capital and profits generally never maintained with sufficient revaluable fixed assets under HCA (normally at least retained profits) are treated like monetary items by accountants with their real values destroyed not by inflation, but, unknowingly by accountants implementing their very destructive stable measuring unit assumption at a rate equal to the annual rate of inflation.

An increase of inflation from 2% to 4% would double the unknowing destruction by accountants in banks´ and companies´ long term capital and investment base besides the effects as stated in the article.

The current 2% or an increased 4% unknowing destruction can knowingly be stopped by entities freely choosing financial capital maintenance in units of constant purchasing power during low inflation and deflation as authorized by the IASB in the Framework, Par 104 (a) 21 years ago. There is no other way during inflation and deflation. It is complaint with IFRS. Currently IFRS are based on fallacies. IFRS should not be based on fallacies.

Copyright © 2010 Nicolaas J Smith

It wasn't them

Accorging to The Economist Alan Greenspan and Ben Bernanke still do not believe monetary policy bears any blame for the crisis.

Part of the remedy for the crisis was strengthening banks’ capital. Most big banks implement IFRS; consequently their accountants have to make a critical choice in terms of the IASB´s Framework, Par 104 (a) authorized twenty one years ago which states: “Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.” Banks are given this choice during low inflation and deflation. They have to choose the one or the other when they choose a financial concept of capital as all banks do.

They all choose financial capital maintenance in nominal monetary units per se which is a complete fallacy during low inflation and deflation: it is impossible to maintain the real value of financial capital constant when measuring financial capital maintenance in nominal monetary units per se during low inflation and deflation. The only way banks can maintain the real value of their capital constant during low inflation is with 100% investment of the updated original real values of all contributions to shareholders´ equity in revaluable fixed assets with an equivalent updated fair value – revalued or not – under Historical Cost Accounting during low inflation.

Most probably not a single bank qualifies for the 100% investment rule. Most probably not a single bank qualifies for that rule even with respect to just equity excluding retained earnings. The portion of the updated real value of banks´ equity not covered by revaluable fixed assets under HCA is thus treated by their HC accountants as simply the same as a monetary item: i.e. they value it at Historical Cost as part of financial capital maintenance in nominal monetary units during low inflation. The real value of the portion not maintained with sufficient revaluable fixed assets is thus unknowingly, unnecessarily and unintentionally being destroyed at a rate equal to the annual rate of inflation by HC accountants implementing their very destructive stable measuring unit assumption (which is based on a fallacy) as part of financial capital maintenance in nominal monetary units (the IFRS authorized fallacy) during low inflation.

The real value of most probably all banks´ retained earnings is thus unnecessarily, unknowingly and unintentionally being destroyed by their accountant’s free choice of financial capital maintenance in units of nominal monetary units during low inflation as authorized in IFRS in the Framework, Par 104 (a) in 1989.

Amazingly the only and perfect remedy to the problem was authorized in IFRS as a free choice to accountants in the exact same IASB´s Framework, Par 104 (a) twenty one years ago, namely, financial capital maintenance in units of constant purchasing power during low inflation and deflation. All banks´ accountants are free to choose this option any time they want. If they had chosen that option in 1989, the world’s banking system would have been much more robust before, during and after the crisis. No-one stops them from doing it now.

HC accountants world wide are unnecessarily, unknowingly and unintentionally destroying hundreds of billion of Euros (perhaps much more) per annum in the real value of companies´ and banks´ shareholders´ equity never maintained with sufficient revaluable fixed assets at a rate equal to the annual rate of inflation year in year out while they implement traditional Historical Cost Accounting during low inflation. They will stop this unnecessary, unknowing and unintentional destruction forever the moment they freely choose financial capital maintenance in units of constant purchasing power during low inflation as authorized in IFRS in the Framework, Par 104 (a) any time they want. They will knowingly boost the world’s real economy with hundreds of billions of Euros (perhaps much more) per annum for an unlimited period of time when they freely switch over to financial capital maintenance in units of constant purchasing power as authorized in IFRS in the IASB´s Framework, Par 104 (a) twenty one years ago.

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith

Friday 26 March 2010

Capital maintenance - Part 1

No-one will disagree that 5.7% annual inflation and not SA accountants destroy the real value of the Rand and other monetary items in the SA monetary economy despite the fact that the SARB regards the destruction of about R114 billion per annum in the real value of the Rand as the achievement and maintenance of “price stability” in the SA economic system. Obviously it is not price stability at all. It is 5.7 % or R114 billion per annum away from price stability. It is the SARB´s choice of “price stability”: their definition of “price stability”. Absolute price stability is a year-on-year increase of zero percent in the Consumer Price Index.

SA accountants freely choose HCA

By doing listed companies´ accounts in terms of IFRS as required by the rules of the Johannesburg Stock Exchange, SA boards of directors – advised by the accountants on the boards - have to choose between a physical and a financial capital concept in terms of the IASB´s Framework, Par 102. According to Par103 the choice of the appropriate concept of capital by a company should be based on the needs of the users of its financial reports.

A company’s capital is synonymous with its Shareholders´ Equity or Net Assets when a financial concept of capital, such as invested purchasing power or invested money, is chosen. Most, if not all, boards of directors of SA companies decide that they will adopt, in terms of the Framework, Par 102, a financial (instead of a physical) concept of capital, namely invested money (instead of invested purchasing power), in preparing their companies’ financial statements. As a result of choosing a financial concept of capital, namely invested money in terms of Par 102, the boards of directors next choose a financial concept of capital maintenance in terms of Par 104.

Under the financial capital maintenance concept a company, in terms of the Framework, Par 104, only earns a profit when the financial (or money) value of the net assets at the end of the accounting period exceeds the financial (or money) value of net assets at the beginning of the period, after excluding any contributions from and distributions to shareholders during the accounting period. This is obviously not correct in real or constant purchasing power terms - only in nominal terms.

SA listed company boards of directors generally choose financial capital maintenance in nominal monetary units in terms of Par 104 (a) because, in their opinion - in terms of Par 103 - the users of the company’s financial statements are primarily concerned with the maintenance of nominal invested capital instead of the maintenance of the purchasing power of invested capital when a financial capital maintenance in units of constant purchasing power concept – as per Par 104 (a) – should be used. The boards of directors thus choose to do their companies´ accounts based on the traditional Historical Cost Accounting model. They believe and support the IASB statement in Par 104 (a) that “financial capital maintenance can be measured in nominal monetary units” which is a complete fallacy during inflation and deflation. It is impossible to maintain the real value of Shareholders´ Equity constant with financial capital maintenance in nominal monetary units per se during inflation and deflation.

In my opinion, the users of SA companies´ financial statements are generally primarily concerned with the maintenance of the constant purchasing power (real value) instead of the nominal value of their invested capital.

It is only possible to maintain the real value of Shareholders´ Equity constant in nominal monetary units when 100% of the inflation-adjusted original real values of all contributions to Shareholders´ Equity are invested in revaluable fixed assets with an equivalent fair value - either revalued or with unrecorded holding gains - under the traditional Historical Cost Accounting model implemented by most companies in South Africa during low inflation. It is not normally the case in the SA economy that companies invest 100% of the original real values of all contributions to Shareholders´ Equity in revaluable fixed assets.

In terms of the Framework, Par 105, the capital maintenance concept deals with how companies define the capital they want to preserve. It is the link between the concept of capital and the concept of profit or loss since it is the point of reference for calculating profit or loss. A company first has to choose a capital maintenance concept before its return of capital and return on capital can be calculated. Only acquired net asset values greater than the capital maintenance requirement can be taken as profit; i.e. a return on capital.

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith

Inflation at 5.7% pa. No way: SA accountants assume it is zero per cent - forever.

Statistics SA announces that the annual inflation rate came down to 5.7%

Gill Marcus reduces interest rates by half a per cent.

SA accountants say: No way: there is no such thing as inflation: inflation in SA is zero per cent, always has been zero per cent and will always in the future be zero per cent.
I state that all constant item accounts have to be adjusted during low inflation - as the IASB authorized 21 years ago.
The US Finanial Accounting Standard Board stated in FAS 33: "The erosion of business profits and invested capital caused by inflation" which is a complete fallacy.  In June, 2008 I also still believed it. Now I know it is a complete fallacy. Inflation per se has no direct effect and never in the past had any direct effect on any non-monetary item. Inflation is always and everywhere a monetary phenomenon. Inflation can only destroy or erode the real value of money and other monetary items - nothing else. The fact that the FASB, the IASB and most accountants believe that the erosion of business profits and invested capital is caused by inflation will never make it so.

So, although the IASB authorized SA accountants 21 years ago to measure financial capital maintenance in units of constant purchasing power during low inflation (see the Framework, Par 104 a) they refuse point blank to do it.

SA accountants will rather unknowingly destroy about R200 billion each and every year in SA companies´ capital and profits never maintained, than listen to the IASB and implement financial capital maintenance in units of constant purchasing power - as the IASB authorized them to do 21 years ago.
Yes, I do say they are terrible destroyers of real value in the SA constant item economy, albeit unknowingly and unintentionally. They still do it - year after year after year.

Gill Marcus said: "But growth in private sector fixed capital formation remains negative:" Of course it will remain negative with SA accountants unknowingly destroying about R200 billion pa in SA Shareholders´ Equity never maintained (SA´s fixed capital base) with their very destructive stable measuring unit assumption.

Copyright © 2010 Nicolaas J Smith

Thursday 25 March 2010

SA accountants unknowingly destroy more real value than inflation

A company’s capital is synonymous with its Net Assets or Shareholders Equity under a financial concept of capital such as invested money or invested purchasing power.

100% of the inflation-adjusted original real values of all contributions to Shareholders´ Equity have to be invested in revaluable fixed assets with an equivalent maintained fair value (revalued or with unrecorded hidden holding gains) in order not to destroy Shareholders Equity’s real value during low inflation under the traditional Historical Cost Accounting model – i.e. measuring financial capital maintenance in nominal monetary units - implemented by most, if not all, companies in South Africa.

The real value of the portion not invested as such is currently unknowingly being destroyed at a rate equal to the annual rate of inflation when the constant real value non-monetary item Shareholders Equity is measured in nominal monetary units, i.e. implementing the very destructive stable measuring unit assumption as done by most, if not all, accountants in SA when they maintain HCA for an unlimited period of time during indefinite low inflation.

Most companies do not meet the requirement to investment 100% of the original real value of all contributions to Shareholders´ Equity in revaluable fixed assets. In practice this means that the real value of Retained Profits never maintained of most SA companies and banks are unknowingly, unintentionally and unnecessarily being destroyed at a rate equal to the annual rate of inflation by SA accountants implementing the IASB-approved traditional HCA model.

Implementing the IASB-approved alternative, namely, financial capital maintenance in units of constant purchasing power as authorized in 1989 in the exact same Framework, Par 104 (a), would stop this unknowing destruction by SA accountants forever under all levels of inflation in all entities that at least break even - whether they own revaluable fixed assets or not - and without the requirement of more money or more Retained Earnings just to maintain the real value of existing Shareholders´ Equity.
One percent inflation destroys about R20 billion per annum in the real value of the Rand in SA. 5.7% annual inflation (Feb 2010) thus destroys about R114 billion per annum in the real value of the Rand.

SA accountants would maintain instead of currently unknowingly and unnecessarily destroy about R200 billion per annum in constant item real value in the SA real economy when they reject the stable measuring unit assumption as approved by the IASB in the Framework, Par 104 (a). SA accountants thus unknowingly, unnecessarily and unintentionally destroy more real value in the SA real economy than inflation.

This R200 billion per annum completely unnecessary real value destruction can be reduced to zero overnight by SA accountants simply implementing the other option authorized by the IASB twenty one years ago in the Framework, Par 104 (a), namely financial capital maintenance in units of constant purchasing power.

Makes you think, doesn´t it?
Copyright © 2010 Nicolaas J Smith

Wednesday 24 March 2010

The difference between disinflation and deflation

Deflation is a sustained absolute decrease in the general price level resulting in a sustained increase in the real value of the functional currency (money) and other monetary items.

The functional currency is the currency of the primary economic environment in which an entity operates. It is normally the national or regional currency or monetary unit and monetary unit of account in an economy or monetary union like the Rand in South Africa and the Euro in the European Monetary Union. In dollarized economies the functional currency – recently mostly the US Dollar – is a relatively stable currency of another (the US) national or regional economy. The German Mark was also used in the past for the same purpose.

Deflation only happens below zero percent annual inflation. Deflation is not one or more months of month-on-month negative inflation during a twelve month period when it does not result in an absolute year-on-year decrease in the general price level. Deflation is the opposite of annual inflation. Deflation is negative annual inflation.

Money and other monetary items are worth more all the time during deflation as opposed to being worth less all the time during inflation. Inflation destroys the real value of money and other monetary items. Deflation creates more real value in money and other monetary items.

Disinflation is simply lower inflation. Disinflation is a decrease in the rate of inflation. Prices in an economy are still rising during disinflation, but at a slower rate. The general price level still rises, but, at a slower rate resulting in a continued, but, lower rate of real value destruction in money and other monetary items.

Disinflation is a lowering of the rate of increase in the general price level. A lowering of the absolute value of the general price level is deflation.

Deflation means the general price level is not increasing at all, but, actually decreasing continuously and money and other monetary items are worth more all the time. Deflation causes an increase in the real value of money and other monetary items.

Inflation destroys the real value of money. Disinflation destroys the real value of money at a slower rate. Deflation creates more real value in money.

Inflation is a sustained increase in the general price level. Disinflation is a slower sustained increase in the general price level. Deflation is a sustained decrease in the general price level.

Disinflation happens, for example, after a period of higher inflation in what are normally considered low inflationary economies and often is initially popularly confused with deflation. During disinflation many prominent prices, for example, oil, fuel, property and food prices are falling, but, the general price level is still actually rising, albeit at a slower rate than during normal low inflation. When the slowing annual inflation rate (slowing increase in general price level) moves lower and lower it eventually gets to a zero percent annual rate. The absolute value of the general price level decrease; i.e. the economy switches over from inflation to deflation: not just a slower increase in the generally increasing price level as during disinflation but actually a sustained decrease in the absolute value of the general price level below zero percent inflation which causes an increase in the real value of money and other monetary items: deflation.

Countries, excluding Japan, have little experience of deflation. Deflation is generally regarded as a very serious economic problem that everyone is trying to avoid at all costs especially after what happened during the Great Depression. Japan, however, has been moving in and out of deflation over the last 15 years or more.

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith

Tuesday 23 March 2010

One who does not ask a question remains a fool forever

One who asks a question is a fool for five minutes; one who does not ask a question remains a fool forever. Chinese Proverb

The Framework applies

SA accountants of companies listed on the Johannesburg Stock Exchange have to prepare primary financial reports in terms of the IASB´s International Financial Reporting Standards. IFRS are Standards, Interpretations and the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the IASB´s Framework for the Preparation and Presentation of Financial Statements in the absence of a Standard or an Interpretation that specifically applies to a transaction.

“In the absence of a Standard or an Interpretation that specifically applies to a transaction, management must use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. In making that judgement, IAS 8.11 requires management to consider the definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the Framework. This elevation of the importance of the Framework was added in the 2003 revisions to IAS 8." IAS Plus, Deloitte. Date: 21st March, 2010 http://www.iasplus.com/standard/framewk.htm

IAS8, 11:
“In making the judgement, management shall refer to, and consider the applicability of, the following sources in descending order:
(a) the requirements and guidance in Standards and Interpretations dealing with similar and related issues; and
(b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework.”

There are no specific IFRS relating to the valuation of the constant items Issued Share Capital, Retained Earnings, other items in Shareholders Equity, the concepts of capital, the concepts of capital maintenance and the determination of profit or loss. The definitions, the concepts for their measurement and the criteria for their recognition in the Framework are thus applicable in terms of IAS8.11.

A fundamental attribute of the traditional Historical Cost Accounting model which SA boards of directors select when they decide on behalf of JSE listed companies to measure financial capital maintenance in nominal monetary units (a generally accepted accounting fallacy) in terms of the IASB´s Framework, Par 104 (a) is that the companies´ accountants unknowingly, unnecessarily and unintentionally destroy the real values of constant items never maintained as a result of their implementation of the very destructive stable measuring unit assumption.

Accountants, on the other hand, unknowingly create real value in constant items never maintained constant (not decreased at a rate equal to the rate of deflation) as a result of their implementation of the real value creating stable measuring unit assumption during deflation (today mainly in Japan).

Kindest regards

Nicolaas Smith
realvalueaccounting@yahoo.com

Copyright © 2010 Nicolaas J Smith