The Federación Argentina de Consejos Profesionales de Ciencias Económicas (FACPCE) can by itself solve the problem of the erosion of Argentinean companies´ shareholders´ equity by the stable measuring unit assumption (mistakenly generally still seen as caused by inflation).Capital Maintenance in Units of Constant Purchasing Power was authorized 23 years ago during low inflation, high inflation and deflation in the International Accounting Standards Board´s original Framework (1989), Par. 104 (a) [now Conceptual Framework (2010), Par. 4.59 (a)] as follows:
‘Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.’
This means that all Argentinean companies can right now freely choose to implement it immediately instead of traditional Historical Cost Accounting (financial capital maintenance in nominal monetary units) in the whole Argentinean economy since it is compliant with current International Financial Reporting Standards during low and high inflation and deflation. Implementation is compliant with current IFRS. Unfortunately it is not required: it is optional.Fortunately, it is possible for the FACPCE to authorize an Argentinean national accounting standard requiring Capital Maintenance in Units of Constant Purchasing Power (which is compliant with current IFRS) at annual inflation greater than 10 per cent and cumulative inflation greater than 26 per cent over three years based on the amended version of the FACPCE´s original proposal in this regard to the IASB in 2010.
The FACPCE thus has the authority to single-handedly solve the problem of the erosion of Argentinean companies´ capital and retained profits by the stable measuring unit assumption (still mistakenly seen as caused by inflation) immediately while the FACPCE is, at the same time, encouraging the IASB to solve the problem worldwide by authorizing its proposal as amended.Such an Argentinean accounting standard would be early implementation normally encouraged by the IASB in the case of a soon to be authorized IFRS if the FACPCE´s proposal is currently accepted as an IASB project.
If the FACPCE´s proposal is not accepted right now by the IASB, then such an Argentinean national accounting standard would be a precursor to an IASB project in the not immediate future.
Capital Maintenance in Units of Constant Purchasing Power is optional during low and high inflation under current IFRS. Not a single Argentinean company has adopted it over the last 23 years since authorization in 1989. Neither would they adopt it of their own free will now. Only requirement by the FACPCE would succeed in solving the problem immediately in Argentina – independent from any standard setting activity by the IASB. No company worldwide has adopted it since 1989 except Auto Sueco (Angola) where I implemented it in the form of accounting-dollarization during hyperinflation in 1996.Capital Maintenance in Units of Constant Purchasing Power would automatically maintain the constant purchasing power of shareholders´ equity constant for an indefinite period of time in all Argentinean companies that at least break even in real value during low and high inflation and deflation – ceteris paribus – whether they own any revaluable fixed assets or not.
In my opinion the FACPCE should immediately issue such an Argentinean national accounting standard, the implementation of which is fully compliant with current IFRS.
Constant Item Purchasing Power Accounting
Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.