August 31, 2014 in Uncategorized
The post-HC economy would be an economy in which the stable measuring unit assumption would be replaced with the Units of Constant Purchasing Power (UCPP) paradigm. The HC paradigm would be abandoned and no-one would ever assume money is perfectly stable during low and high inflation and deflation for the purpose of valuing some (not all) items in the economy as all economists, accountants and business people do during non-hyperinflationary periods in the current HC era.
HCA would be replaced with the Capital Maintenance in Units of Constant Purchasing Power (CMUCPP) in terms of the Daily CPI model in the post-HC economy.
CMUCPP was authorized in IFRS as an alternative to HCA during all levels of inflation and deflation in the original Framework (1989), Par. 104 (a) which stated:
“Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.”
The above wording is maintained intact in International Financial Reporting Standards in the current Conceptual Framework (2010), Par. 4.59 (a).
The accounting model for the post-HC economy was thus authorized in 1989 in IFRS. It was also authorized in US GAAP and other national accounting standards during that time.
The following is unbelievable, but true:
The South African Institute of Chartered Accountants (SAICA) suggested in January 2014 to the International Accounting Standards Board that it should remove the capital maintenance paragraphs from the Conceptual Framework (2010). SAICA mistakenly believes that capital maintenance is only of importance during high and hyperinflation and thus made that silly and unbelievable suggestion to the IASB. I fell off my chair when I read SAICA´s suggestion to the IASB. I emailed SAICA about it to express my horror at their suggestion, but they had no real answer for me. They repeated to me what they had suggested to the IASB, but they omitted in their repetition to me the actual suggestion to remove the capital maintenance paragraphs from the Framework thus silently admitting their terrible mistake.
SAICA is clueless about the benefits of CMUCPP in terms of the Daily CPI. CMUCPP would stabilise the SA constant real value non-monetary economy over a short period of time. SAICA has no clue what this means.
SAICA is clueless about capital maintenance in units of constant purchasing power as stated in IFRS in the Framework. They don´t have the foggiest idea what it means or what it´s effect on the SA economy would be if it were to be implemented in terms of the Daily CPI: not the foggiest!!
But, they were quick to state in public on their website for everyone to read that I would insult users of financial reports prepared during low inflation (you) if I were to suggest that they inflation-index, in terms of the Daily CPI, constant real value non-monetary items like issued share capital, all other items in shareholders´ equity, provisions, all items in the profit and loss account, salaries, wages, rents, pensions, taxes, trade debtors, trade creditors, all other non-monetary debtors, all other non-monetary creditors, etc. although it was authorized in IFRS and US GAAP in 1989.
Everything on this blog is thus an insult to users of financial reports prepared during low inflation (you) as far as SAICA is concerned. You have to believe SAICA: they are the highest authority and the most respected on accounting matters in SA.
Nicolaas Smith Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.