Constant Purchasing Power Accounting - Capital Maintenance in Units of Constant Purchasing Power Implements Capital Maintenance in Units Of

Capital Maintenance in Units of Constant Purchasing Power Implements Capital Maintenance in Units of

The specific choice of measuring financial capital maintenance in units of constant purchasing power (the Capital Maintenance in Units of Constant Purchasing Power model) as authorized in the original Framework (1989), was approved by the IASB's predecessor body, the International Accounting Standards Committee Board, in April 1989 for publication in July 1989 and adopted by the IASB in April 2001.

"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."

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 is no applicable IFRS or Interpretations regarding the capital concept, the capital maintenance concept and the valuation of all constant real value non-monetary items. The original Framework (1989), Par 104 (a) is thus applicable.

Capital Maintenance in Units of Constant Purchasing Power is not only an inflation accounting model. Capital Maintenance in Units of Constant Purchasing Power is implemented at all levels of inflation and deflation. IAS 29 ( requiring Capital Maintenance in Units of Constant Purchasing Power) is the inflation-accounting model defined in IFRS. Capital Maintenance in Units of Constant Purchasing Power by measuring financial capital maintenance in units of CPP incorporates an alternative CPP capital concept, CPP financial capital maintenance concept and CPP profit determination concept to the HC capital concept, HC financial capital maintenance concept and HC profit determination concept. Capital Maintenance in Units of Constant Purchasing Power requires all constant items always and everywhere to be valued in units of CPP in terms of the Daily CPI because there is no stable measuring unit assumption under this accounting model. Variable items are valued in terms of IFRS or GAAP and then updated in terms of the Daily CPI. Historical variable items are updated daily in terms of the Daily CPI as a result of the absence of the stable measuring unit assumption under Capital Maintenance in Units of Constant Purchasing Power.

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