You are browsing the archive for 2013 January.

The objective of financial reporting / accounting

January 31, 2013 in Uncategorized

The objective of financial reporting / accounting

The objective of general purpose financial reporting / accounting is to legalise measurement bases binding on both parties in transactions / exchanges, e.g., a sale (contract), that results in automatic capital maintenance in units of constant purchasing power, i.e., that results in automatically maintaining the constant purchasing power of capital constant at all levels of inflation and deflation, including during hyperinflation, in all entities that at least break even in real value – ceteris paribus – for an indefinite period of time.
This objective is automatically achieved with IFRS-authorised Capital Maintenance in Units of Constant Purchasing Power in terms of a Daily Index.
Nicolaas Smith
Do not ask the IASB for guidance regarding IFRS-authorised CMCUPP. They do not understand it. Contact me for guidance at realvalueaccounting[at]yahoo.com.
Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.

How to automatically maintain your compay´s capital (equity) constant in real value

January 28, 2013 in Uncategorized

How to automatically maintain your compay´s capital (equity) constant in real value

Stop the stable measuring unit assumption (i.e. stop Historical Cost Accounting).
Guidance
1.                  Implement IFRS-authorised Capital Maintenance in Units of Constant Purchasing Power in terms of a Daily Index.
2.                  Keep no monetary item overnight unless it is inflation-indexed on a daily basis during inflation.
3.                  Your General Conditions of Sale (Contracts) has to state that outstanding receivables and payables will be measured in units of constant purchasing power on a daily basis in terms of a Daily Index from the date of sale (contract) till the date of settlement.
Do not ask the IASB for guidance in this issue. They do not understand IFRS-authorised CMCUPP. Contact me for guidance at realvalueaccounting[at]yahoo.com.

Nicolaas Smith Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.

How to automatically stabilise your economy

January 28, 2013 in Uncategorized

How to automatically stabilise your economy

Stop the stable measuring unit assumption (i.e. stop Historical Cost Accounting).
Guidance
1.       Implement IFRS-authorised Capital Maintenance in Units of Constant Purchasing Power in terms of a Daily Index.
2.       Inflation-index all monetary items daily in terms of a Daily Index with all money inside the banking system.
3.       The Central Bank is required to pay to (during inflation) or receive from (during deflation) commercial banks interest in terms of the Daily Index on the total overnight cash balances in commercial banks.
Do not ask the IASB for guidance in this issue. They do not understand IFRS-authorised CMCUPP. Contact me for guidance at realvalueaccounting[at]yahoo.com.

Nicolaas Smith Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.

IASB incapable of expressing a view about IAS 29 in Zimbabwe

January 25, 2013 in Uncategorized

IASB incapable of expressing a view about IAS 29 in Zimbabwe

  According to Michael Stewart, Director of Implementation Activities at the IASB:
‘I made a comment that until such time as the IASB decides that IAS 29 should be either amended or withdrawn, it is the appropriate standard to apply when the functional currency of an entity is the currency of a hyperinflationary economy (as defined in that standard). I think this is very different from the statement that you have attributed to me that “the IASB is satisfied with the implementation of IAS 29 during 8 years in Zimbabwe’s hyperinflationary economy”. The IASB has not conducted a review of the implementation of IAS 29 during 8 years in Zimbabwe’s hyperinflationary economy so it is not possible for the IASB to express such a view without having undertaken such a review.’

Personal communication, 2013
Most accountants in the world, except the members of the IASB according to Michael Stewart as well as himself, can express the view that the implementation of IAS 29 had no positive effect in Zimbabwe
.
Only the IASB and Michael Stewart need a review.
Most other interested parties can recognise what is obvious in history.
Nicolaas Smith
Opinions on this blog expressed by me are my personal opinions.
Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.

IASB clueless about CMUCPP

January 25, 2013 in Uncategorized

IASB clueless about financial capital maintenance in units of constant purchasing power

Updated 12-01-2014

The IASB does not understand the difference between

1Financial statements measured in constant purchasing power units (Agenda Paper 20)

and

2. Financial statements prepared under the concept of financial capital maintenance in constant purchasing power units(Paper Topic)

The proofs are in the links.

(The IASB removed the title of Agenda Paper 20 which hides (in order to hide?) the fact that they had the two different descriptions for the same item: the one in the Title of Agenda Paper 20 on the Schedule for the 22 – 23 January 2013 IFRS Interpretations Committee meeting and the other in the actual Paper Topic in the actual Agenda Paper 20 pdf file.)

The IASB does not understand that financial statements prepared under the CAPITAL MAINTENANCE CONCEPT of finacial capital maintenance in constant purchasing power units is very, very, very different from year end financial statements simply measured(restated after year-end) in constant purchasing power units. The IASB is as blind as a bat about capital maintenance: absolutely clueless. However, I have come to realise that this is simply a reflection of the very generally view in most (not all – see CPA Australia and the Institute of Chartered Accountants Australia´s view that

IASB has “a lack of understanding about the fundamental role a capital maintenance concept has within the accounting framework”)

of the accounting profession about the financial capital maintenance concept.

Agenda Paper 20 contains 16 unresolved errors / problems / disagreements with the submitter (me).

As can be seen from the links, the IASB uses the two different descriptions of two different concepts for (the same) Agenda Paper 20.

Nicolaas Smith

Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.

Updated 12-01-2014

The most destructive requirement in IFRS authorised by the very inefficient IASB

January 24, 2013 in Uncategorized

The most destructive requirement in IFRS authorised by the very inefficient IASB

The most destructive requirement in IFRS authorised by the very inefficient IASB
The failed IAS 29, the IASB´s greatest failure to date, affected the Zimbabwe economy very negatively during hyperinflation. It was implemented during various years in Zimbabwe´s hyperinflationary economy with no positive effect. The failed IAS 29 had a very negative effect since it encourages and requires the implementation of the Historical Cost Accounting model during hyperinflation, the most destructive requirement in IFRS authorised by the very inefficient IASB.

Nicolaas Smith
Opinions on this blog expressed by me are my personal opinions.
Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.

Financial reporting affects the economy

January 24, 2013 in Uncategorized

Financial reporting affects the economy

Accounting which includes financial reporting affects the economy via the accounting policies and especially the measurement bases adopted by entities.  Accounting records economic activity. Economic activity is affected by the choice of accounting policies and measurement bases. Accounting is recording of economic activity. Accounting policies influence the choice of measurement bases which affects the economy.
The single most powerful measurement base affecting the economy is the choice of implementing the stable measuring unit assumption, i.e., choosing Historical Cost Accounting.
The actual implementation of the stable measuring unit assumption is not the recording of economic activity. Implementing the stable measuring unit assumption  is a business practice / policy which is after the event recorded via accounting and financial reporting when the period-end financial statements are prepared.
Thus implementing the stable measuring unit assumption is not accounting. It is the implementation of a business practice. The Conceptual Framework states that the choice of the measurement bases and the capital maintenance concept chosen, determines the accounting model.
HCA causes the cost of inflation and the cost of hyperinflation because it is chosen by the board of directors as the accounting model to be used by the entity. HCA requires the implementation of the stable measuring unit assumption in the measurement of certain items.
HCA determines the business practice. HCA decides when economic items will be required to be measured implementing the stable measuring unit assumption.
Thus, HCA causes the cost of inflation and the cost of hyperinflation, not actual inflation and actual hyperinflation which are economic processes, not accounting practices.

Nicolaas Smith Opinions on this blog expressed by me are my personal opinions. Copyright (c) 2005-2013 Nicolaas J Smith. All rights reserved. No reproduction without permission.