Bitcoin is not money like your local currency
There are three basic economic items in the economy:
1. Monetary items, e.g., bank notes and coins, money loans and all other items in the money supply.
2. Variable real value non-monetary items, e.g., property, plant, equipment, inventory, stocks, shares, patents, stamps, gold, etc.
3. Constant real value non-monetary items, e.g., salaries, wages, rents, interest, capital, profits, losses, all items in shareholders equity, all items in the profit and loss account, accounts receivable, accounts payable, etc.
Where do bitcoins fit in?
They are not constant real value non-monetary items. Their real values change daily.
Are they monetary items? Let´s see: are they the same as money?
For any item to be money it has to have all three of the functions of money:
a) Medium of exchange.
b) Store of value.
c) Unit of account.
Bitcoins are certainly a medium of exchange. Somebody bought a Tesla with bitcoins. They are accepted in some stores.
Bitcoins are certainly a store of value, albeit an unstable store of value. They started off in 2009 at a few US Dollars each. A few months ago they shot up to over USD 1200 each. Today they are down to USD 480 I see on Google search.
Are bitcoins a unit of account? I know they are accepted as such in Germany for the purpose of making bitcoin transactions taxable, but it is specifically then immediately stated in Germany that bitcoins are far from being a currency or even e-money the same as the pound or dollar or euro. They are not generally accepted as a unit of account. Financial reports are not widely prepared in bitcoins.
Thus, bitcoins generally only fulfil two of the three functions of money, namely medium of exchange and store of value. Bitcoins are thus not money or monetary items.
However, in 2013 a federal judge in the US stated they are the same as money. That still does not mean that they are widely being used as a unit of account with companies doing their books in terms of bitcoins.
It is certainly a fact that bitcoins are generally described as bitcoin money, a currency, virtual currency, digital currency, virtual money or cryptocurrency. There is no doubt about that. These are the popular terms in the news, on the internet, in research papers, etc. However, bitcoins are not generally used as a unit of account. Thus they are not money or a monetary item or a local currency in terms of the economic definition of money or a monetary item.
Bitcoins are variable real value non-monetary items. The US IRS ruled that they are properties. They are similar to (not the same as) gold or silver coins, stamps or any other variable real value non-monetary item being used as a medium of exchange and store of value. Cigarettes are often used as a medium and exchange and store of value (over the very short term) in prisons.
Bloomberg's report regarding the People's Bank of China: "The central bank will keep watching risks from Bitcoin, which is fundamentally not a currency but an investment target, Sheng Songcheng, head of the monetary authority’s statistics department, told reporters in Beijing on Jan. 15."
Nicolaas Smith
Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Thursday 3 April 2014
Tuesday 1 April 2014
Capital Maintenance feedback summary by the IASB
Purpose of paper
1. This paper summarises the feedback received on:
(a) the measurement section of the Discussion Paper A Review of the Conceptual Framework for Financial Reporting.
(b) Capital Maintenance, discussed in paragraphs 9.45–9.54 of the Discussion Paper.
2. This paper provides a high level summary of the comments received.
Where appropriate, we will provide more detailed breakdown of the comments for future meetings.
Capital Maintenance
Background
58. The Discussion Paper stated that the IASB plans to include the existing descriptions and the discussion of capital maintenance concepts in the revised Conceptual Framework largely unchanged until such time as a new or revised Standard on accounting for high inflation indicates a need for change.
Summary of feedback
59. Most respondents either agreed with this approach or did not comment on it. Those who explicitly agreed with the approach stated that they had encountered few problems either with the capital maintenance concepts in the existing Conceptual Framework or with high inflation. Consequently, they argued that revising or updating the capital maintenance concepts in the Conceptual Framework should not be a priority.
60. A few respondents broadly agreed with the suggested approach to capital maintenance but suggested some changes to the existing guidance including:
(a) stating in the Conceptual Framework a preference for one of the concepts
of capital maintenance;
(b) removing reference to the physical capital maintenance concept because it
is not used in IFRS;
(c) shortening and focusing the discussion of capital maintenance;
(d) removing all discussion of capital maintenance because it was viewed as
irrelevant to most entities.
61. Some respondents disagreed with the suggested approach. They argued that the concept of capital maintenance is of fundamental importance to financial reporting.
"…the Conceptual Framework should articulate an ideal concept of capital maintenance and its relationship to the ideal measurement base. Accordingly, we do not support the proposal that leaves the existing descriptions and discussion of this issue largely unchanged until such time as any project on accounting for high inflation indicates a need for change.
We think this approach suggests a lack of understanding about the fundamental role a capital maintenance concept has within the accounting framework.
We also consider that our current difficulties with profit measurement and OCI, which have issues of capital maintenance at their root clearly indicate a pressing need to resolve these issues."
CPA Australia and The Institute of Chartered Accountants Australia
62. A few respondents also noted that many jurisdictions are affected by high inflation. Consequently, the IASB should consider capital maintenance concepts when revising the Conceptual Framework.
One respondent argued for greater use of capital maintenance as defined in terms of units of constant purchasing power.
63. A few respondents expressed the view that the IASB’s suggested approach to capital maintenance confuses two concepts:
(a) capital maintenance; and
(b) the measurement unit (nominal vs constant purchasing power), which is the subject of IAS 29 Financial Reporting in Hyperinflationary Economies.
IASB Agenda ref 10G
Copyright (c) 2014 IFRS Foundation
1. This paper summarises the feedback received on:
(a) the measurement section of the Discussion Paper A Review of the Conceptual Framework for Financial Reporting.
(b) Capital Maintenance, discussed in paragraphs 9.45–9.54 of the Discussion Paper.
2. This paper provides a high level summary of the comments received.
Where appropriate, we will provide more detailed breakdown of the comments for future meetings.
Background
58. The Discussion Paper stated that the IASB plans to include the existing descriptions and the discussion of capital maintenance concepts in the revised Conceptual Framework largely unchanged until such time as a new or revised Standard on accounting for high inflation indicates a need for change.
Summary of feedback
59. Most respondents either agreed with this approach or did not comment on it. Those who explicitly agreed with the approach stated that they had encountered few problems either with the capital maintenance concepts in the existing Conceptual Framework or with high inflation. Consequently, they argued that revising or updating the capital maintenance concepts in the Conceptual Framework should not be a priority.
60. A few respondents broadly agreed with the suggested approach to capital maintenance but suggested some changes to the existing guidance including:
(a) stating in the Conceptual Framework a preference for one of the concepts
of capital maintenance;
(b) removing reference to the physical capital maintenance concept because it
is not used in IFRS;
(c) shortening and focusing the discussion of capital maintenance;
(d) removing all discussion of capital maintenance because it was viewed as
irrelevant to most entities.
61. Some respondents disagreed with the suggested approach. They argued that the concept of capital maintenance is of fundamental importance to financial reporting.
"…the Conceptual Framework should articulate an ideal concept of capital maintenance and its relationship to the ideal measurement base. Accordingly, we do not support the proposal that leaves the existing descriptions and discussion of this issue largely unchanged until such time as any project on accounting for high inflation indicates a need for change.
We think this approach suggests a lack of understanding about the fundamental role a capital maintenance concept has within the accounting framework.
We also consider that our current difficulties with profit measurement and OCI, which have issues of capital maintenance at their root clearly indicate a pressing need to resolve these issues."
CPA Australia and The Institute of Chartered Accountants Australia
62. A few respondents also noted that many jurisdictions are affected by high inflation. Consequently, the IASB should consider capital maintenance concepts when revising the Conceptual Framework.
One respondent argued for greater use of capital maintenance as defined in terms of units of constant purchasing power.
63. A few respondents expressed the view that the IASB’s suggested approach to capital maintenance confuses two concepts:
(a) capital maintenance; and
(b) the measurement unit (nominal vs constant purchasing power), which is the subject of IAS 29 Financial Reporting in Hyperinflationary Economies.
IASB Agenda ref 10G
Copyright (c) 2014 IFRS Foundation
ECB introduces the Real Euro
The European Central Bank today introduces Real Euros for the first time in countries in the European Monetary Union. Real Euros are new Euro notes with an embedded chip that reduces the nominal value of the notes in terms of inflation. During deflation the nominal values appearing on the notes will automatically increase in line with deflation.
This is a way to stabilize the Euro monetary economy in the European Monetary Union. It does away with the real effect of inflation and deflation in the EMU.
For example, during inflation of 2% per annum, the nominal value appearing on a new 100 Real Euro note automatically decreases to 98 Euros.
During deflation of 2% per annum the nominal value appearing on a 100 Real Euro note automatically increases to 102 Euros.
The President of the ECB, Mario Draghi, states that this will keep the value of the Euro money supply stable in real terms in the EMU.
He says that all nominal Euros can be exchanged at banks in Europe as from today for Real Euros.
Economists warn that this will make the effect of deflation even worse in the EMU. People will actually see their money increase in real value and will hang on to the notes even longer (see Japan during deflation) before spending them thus worsening the economy.
On the other hand this will stimulate spending during inflation since people will spend their money sooner - before the Real Euros lose more real value in front of their eyes.
Copyright (c) 2014 Primeiro de Abril All rights reserved. No reproduction without permission.
This is a way to stabilize the Euro monetary economy in the European Monetary Union. It does away with the real effect of inflation and deflation in the EMU.
For example, during inflation of 2% per annum, the nominal value appearing on a new 100 Real Euro note automatically decreases to 98 Euros.
During deflation of 2% per annum the nominal value appearing on a 100 Real Euro note automatically increases to 102 Euros.
The President of the ECB, Mario Draghi, states that this will keep the value of the Euro money supply stable in real terms in the EMU.
He says that all nominal Euros can be exchanged at banks in Europe as from today for Real Euros.
Economists warn that this will make the effect of deflation even worse in the EMU. People will actually see their money increase in real value and will hang on to the notes even longer (see Japan during deflation) before spending them thus worsening the economy.
On the other hand this will stimulate spending during inflation since people will spend their money sooner - before the Real Euros lose more real value in front of their eyes.
Copyright (c) 2014 Primeiro de Abril All rights reserved. No reproduction without permission.
Sunday 30 March 2014
Difference between monetary values and monetary items
All economic/accounting/financial values expressed in terms of the monetary unit of account - whether they refer to non-monetary or monetary items - are stated as monetary values: the unit of account is a monetary unit of account.
Definition: Monetary items constitute the money supply.
When an item is part of a country´s money supply, then it is a monetary item. It is expressed as a monetary value since it is expressed in terms of the monetary unit of account.
All non-monetary items - variable and constant real value non-monetary items - expressed in terms of the monetary unit of account are stated as monetary values, but they are not monetary items.
All monetary items are monetary values but not all monetary values are monetary items.
Nicolaas Smith Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Definition: Monetary items constitute the money supply.
When an item is part of a country´s money supply, then it is a monetary item. It is expressed as a monetary value since it is expressed in terms of the monetary unit of account.
All non-monetary items - variable and constant real value non-monetary items - expressed in terms of the monetary unit of account are stated as monetary values, but they are not monetary items.
All monetary items are monetary values but not all monetary values are monetary items.
Nicolaas Smith Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Thursday 27 March 2014
Daily CPI formula used by France
The formula for calculating the French and Eurozone Daily CPIs is available HERE.
The following Daily CPI´s have been added to the Daily CPI / Monetized Daily Indexed Unit of Account list on the right hand side of this blog:
Eurozone Daily CPI
French Daily CPI
Mexican Monetized Daily Indexed Unit of Account
Nicolaas Smith Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
The following Daily CPI´s have been added to the Daily CPI / Monetized Daily Indexed Unit of Account list on the right hand side of this blog:
Eurozone Daily CPI
French Daily CPI
Mexican Monetized Daily Indexed Unit of Account
Nicolaas Smith Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Tuesday 25 March 2014
Argentinian and Uruguayan Daily CPIs
The Argentinian Daily CPI and the Uruguayan Daily CPI are new additions to the Daily CPI / Daily Monetized Unit of Account links on the right hand side of this blog.
The Daily CPI links now include:
1. Chile
2. Colombia
3. Iceland
4. Serbia
5. Turkey
6. UK
7. Uruguay
8. US
9. US unofficial Daily CPI
10. Other unofficial Daily CPIs
The above official Daily CPIs and all others not yet linked on this blog are used in these countries to value/price their specific government inflation-indexed bonds on a DAILY basis in the global USD 3 trillion (2014) market for these sovereign bonds.
Countries that calculate their Daily CPIs in the form of a Daily Monetized Unit of Account and express them in terms of either 1 or 100 units of local currency at the base date, use these DMUAs also to value/price other items besides their government inflation-indexed bonds in their economies. This is of great advantage in these specific DMUA economies.
Chile inflation-index a number of monetary items and non-monetary items in their economy on a DAILY basis besides their sovereign inflation-indexed bonds. So much so that they inflation-adjust more than 25% of their money supply on a DAILY basis. There is thus NO EFFECT of inflation in 25% of Chile´s money supply. If they were to increase that to 100% of their money supply they would have NO EFFECT of inflation in 100% if their money supply at whatever rate of low, high or hyperinflation and deflation.
Colombia use their Real Value Unit DMUA to inflation-index all mortgage bonds in the country on a DAILY basis.
Uruguay use their Unidad Indexada to inflation-adjust some monetary items besides their sovereign inflation-indexed bonds on a DAILY basis.
Nicolaas Smith
Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
The Daily CPI links now include:
1. Chile
2. Colombia
3. Iceland
4. Serbia
5. Turkey
6. UK
7. Uruguay
8. US
9. US unofficial Daily CPI
10. Other unofficial Daily CPIs
The above official Daily CPIs and all others not yet linked on this blog are used in these countries to value/price their specific government inflation-indexed bonds on a DAILY basis in the global USD 3 trillion (2014) market for these sovereign bonds.
Countries that calculate their Daily CPIs in the form of a Daily Monetized Unit of Account and express them in terms of either 1 or 100 units of local currency at the base date, use these DMUAs also to value/price other items besides their government inflation-indexed bonds in their economies. This is of great advantage in these specific DMUA economies.
Chile inflation-index a number of monetary items and non-monetary items in their economy on a DAILY basis besides their sovereign inflation-indexed bonds. So much so that they inflation-adjust more than 25% of their money supply on a DAILY basis. There is thus NO EFFECT of inflation in 25% of Chile´s money supply. If they were to increase that to 100% of their money supply they would have NO EFFECT of inflation in 100% if their money supply at whatever rate of low, high or hyperinflation and deflation.
Colombia use their Real Value Unit DMUA to inflation-index all mortgage bonds in the country on a DAILY basis.
Uruguay use their Unidad Indexada to inflation-adjust some monetary items besides their sovereign inflation-indexed bonds on a DAILY basis.
Nicolaas Smith
Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Friday 14 March 2014
Daily indexing will stop your tears forever, Argentina
The Argentinian Accounting Federation sent a proposal to the IASB in 2010 regarding financial reporting in high inflationary economies (available in IFRS 'X'). I amended their proposal in 2012 with IFRS 'X' CAPITAL MAINTENANCE IN UNITS OF CONSTANT PURCHASING POWER. I suggested capital maintenance in units of constant purchasing power in terms of a DAILY INDEX similar to what stabilized the Brazilian economy during high and hyperinflation from 1964 to 1994. Brazilian accountants called it ´correcção monetária`.
My amendment was ignored by both the Argentinian Accounting Federation and the IASB. The IASB at one stage even wanted to throw my amendments in the rubbish bin. Maybe that is where IFRS ´X´is now at the IASB - despite Hans Hoogervorst´s assurances to the contrary.
When I first read, a year or two ago, that the Argentinian government was faking inflation, I knew that they would land up in an economic disaster.
Now we have this:
Unfortunately the IASB is still in love with historical cost accounting even during high inflation. "The cheque amount is what represents cost" is currently still very forcefully stated by a top IASB member in public when discussing accounting during high inflation which could reach up to 25% per annum. What a joke.
Watch Argentina and Venezuela to see historical cost accountants destroying two big economies - aided and abetted by the IASB.
Nicolaas Smith
Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
My amendment was ignored by both the Argentinian Accounting Federation and the IASB. The IASB at one stage even wanted to throw my amendments in the rubbish bin. Maybe that is where IFRS ´X´is now at the IASB - despite Hans Hoogervorst´s assurances to the contrary.
When I first read, a year or two ago, that the Argentinian government was faking inflation, I knew that they would land up in an economic disaster.
Now we have this:
Soaring Prices Fuel Frustrations Among Weary Argentines
IFRS 'X' is still valid today. It will always be valid while there is inflation and deflation. DAILY INDEXING would give Argentina economic stability over a very short period of time. The IASB could REQUIRE it in IAS 29. The Board could encourage it immediately while correcting IAS 29 in a very short time.Unfortunately the IASB is still in love with historical cost accounting even during high inflation. "The cheque amount is what represents cost" is currently still very forcefully stated by a top IASB member in public when discussing accounting during high inflation which could reach up to 25% per annum. What a joke.
Watch Argentina and Venezuela to see historical cost accountants destroying two big economies - aided and abetted by the IASB.
Nicolaas Smith
Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Thursday 27 February 2014
Ukraine and Venezuela can achieve economic stability in the very short run with help from the IASB
The implementation of capital maintenance in units of constant purchasing power in terms of a DAILY index which follows all - at least DAILY - changes in the general price level would GUARANTEE stability in the REAL VALUE (constant purchasing power) of
salaries
wages
rents
taxes
trade debtors
trade creditors
all non-monetary payables
all non-monetary receivables
all items in the income statement
all profits
all losses
issued share capital
retained earnings
capital reserves
all other items in shareholders´equity
provisions
etc.
at any level of high or hyperinflation in Ukraine and Venezuela in the very short run. This requires the calculation and accounting of net monetary losses and gains.
This would stabilize the constant real value non-monetary economies in Ukraine and Venezuela in the very short run.
This was done very successfully in Brazil from 1964 to 1994 with "correcção monetária" or DAILY indexing which is CMUCPP in terms of a DAILY INDEX.
Extending DAILY INDEXING or "correcção monetária" or CMUCPP in terms of a DAILY INDEX to include the daily inflation-adjustment of all monetary items with all cash in the banking system (obviously not 100% possible) and it would GUARANTEE the stability of the REAL VALUE of these inflation-indexed monetary items at all levels of high and hyperinflation in Ukraine and Venezuela in the very short run. There would still be high or hyperinflation in Ukraine and Venezuela but there would be no EFFECT OF high or hyperinflation just like the effect of low and high inflation is eliminated in the global USD 3 trillion in government capital inflation-indexed bonds (e.g. TIPS) currently inflation-adjusted DAILY during low and high inflation in terms of the DAILY CPI in a great number of countries in the world economy.
Chile already inflation-indexes 25% + of all monetary items in its economy on a DAILY basis during low inflation since 2012. Chile started indexing in 1967 in its economy. They adopted DAILY INDEXING since 1990.
Robert Shiller decried governments´ lack of interest in DAILY INDEXING years ago.
The IASB can achieve that today in a very short time by requiring DAILY INDEXING in IAS 29 Financial Reporting in Hyperinflationary Economies by means of the short turn-around process for correcting an issued IFRS.
Venezuela is implementing IAS 29 since 2009. Ukraine is or would soon be in high inflation. IAS 29 in terms of the monthly published CPI does NOT achieve the above monetary and non-monetary stability as very well proven during the 6 years IAS 29 was implemented at the end of Zimbabwe´s hyperinflation.
Nothing stops the IASB from requiring DAILY INDEXING in IAS 29 and nothing stops the IASB from encouraging it immediately and changing IAS 29 to require it over the very short term.
The above would also stabilize the foreign currency exchange rates of Ukraine and Venezuela with the rest of the world economy - obviously only with all else being equal. DAILY INDEXING would always guarantee internal economic stability no matter what happens with the external exchange rate. Internal economic stability generally always has a stabilizing effect on the external exchange rate - all else being equal.
What a difference DAILY INDEXING of all monetary items and all constant real value non-monetary items would make in Ukraine and Venezuela. Ask Robert Shiller and Gustavo Franco. Franco was one of the architects of the Real Plan in Brazil in 1994.
All of the above also hold true for Argentina and all other countries in high and hyperinflation. The constant purchasing power of constant real value non-monetary items and inflation-indexed monetary items is not only to be maintained constant in real value with the onset of high inflation or only during hyperinflation. CMUCPP in terms of a DAILY INDEX is required at all levels of inflation and deflation: during low inflation and deflation too.
Nicolaas Smith
Copyright (c) 2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Wednesday 19 February 2014
Scotland can unofficially dollarize using the Pound - without London´s consent
According to Forbes:
"In an almost unheard of outbreak of unanimity, the three major political parties in London – the Conservatives, Labor, and the Liberal Democrats – last week concurred in saying that the U.K. would not allow an independent Scotland to use the pound."
Scotland - or any country in the world, for that matter - can unilaterally adopt the British Pound, or any other country´s currency, as its currency. It is called unofficial dollarization.
No-one can stop a country from using another country´s currency. Many small economies (island-state economies) are unofficially dollarized using the US Dollar as the national currency.
Zimbabwe uses the British Pound as one of the several currencies it uses in its multi-currency dollarization of its economy.
The fact that the Zimbabwean population refused to accept the Zimbabwean Dollar as payment towards November 2008, means that Zimbabwe dollarized spontaneously. The people decided: not the government.
When Zimbabwe then officially withdrew the Zimbabwean Dollar from circulation as from 20 November 2008, it then unofficially dollarized the Zimbabwean economy allowing the official use of the US Dollar, British Pound, SA Rand, Euro and Botswana Pula.
Zimbabwe did not ask permission from the US, UK, EU, SA or Botswana. The Zimbabwean government just decided by themselves to follow the Zimbabwean population´s lead.
Nicolaas Smith Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
"In an almost unheard of outbreak of unanimity, the three major political parties in London – the Conservatives, Labor, and the Liberal Democrats – last week concurred in saying that the U.K. would not allow an independent Scotland to use the pound."
Scotland - or any country in the world, for that matter - can unilaterally adopt the British Pound, or any other country´s currency, as its currency. It is called unofficial dollarization.
No-one can stop a country from using another country´s currency. Many small economies (island-state economies) are unofficially dollarized using the US Dollar as the national currency.
Zimbabwe uses the British Pound as one of the several currencies it uses in its multi-currency dollarization of its economy.
The fact that the Zimbabwean population refused to accept the Zimbabwean Dollar as payment towards November 2008, means that Zimbabwe dollarized spontaneously. The people decided: not the government.
When Zimbabwe then officially withdrew the Zimbabwean Dollar from circulation as from 20 November 2008, it then unofficially dollarized the Zimbabwean economy allowing the official use of the US Dollar, British Pound, SA Rand, Euro and Botswana Pula.
Zimbabwe did not ask permission from the US, UK, EU, SA or Botswana. The Zimbabwean government just decided by themselves to follow the Zimbabwean population´s lead.
Nicolaas Smith Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Monday 10 February 2014
Selection of the capital maintenance concept is a choice that is available within the Conceptual Framework
“Par. 14 . The selection of the capital maintenance concept is a choice that is available within the Conceptual Framework that provides a fundamental basis of preparation of financial statements. Paragraph 4.58 of the Conceptual Framework states that “the selection of the appropriate concept of capital by an entity should be based on the needs of the users of its financial statements”. Accordingly, those who support this view argue that the entity is permitted to use the financial capital maintenance concept defined in constant purchasing power units if this concept, among the alternative concepts described in the Conceptual Framework, provides the most useful information to users.
Par. 15. Having made a choice of using the financial capital maintenance concept in constant purchasing power units, the entity would develop accounting policies by referring to an IFRS that addresses a transaction, other event or condition analysed in accordance with paragraph 10 of IAS 8. The entity would need to adapt each IFRS for the use under that capital maintenance concept.”
STAFF PAPER Agenda ref 12, 10–11 September 2013 IFRS Interpretations Committee Meeting
Project IAS 29 Financial Reporting in Hyperinflationary Economies
Paper topic Applicability of the concept of financial capital maintenance defined in constant purchasing power units.
I fully support the above view.
Nicolaas Smith
Par. 15. Having made a choice of using the financial capital maintenance concept in constant purchasing power units, the entity would develop accounting policies by referring to an IFRS that addresses a transaction, other event or condition analysed in accordance with paragraph 10 of IAS 8. The entity would need to adapt each IFRS for the use under that capital maintenance concept.”
STAFF PAPER Agenda ref 12, 10–11 September 2013 IFRS Interpretations Committee Meeting
Project IAS 29 Financial Reporting in Hyperinflationary Economies
Paper topic Applicability of the concept of financial capital maintenance defined in constant purchasing power units.
Nicolaas Smith
Friday 7 February 2014
DAILY GENERAL PRICE LEVEL
DAILY GENERAL PRICE LEVEL
A price index is a normalized average of prices for goods and services within an economy over a given period of time. The best known is the Consumer Price Index (CPI).
The general price level is a hypothetical measure of overall prices of goods and services in an economy over time, normalized relative to some base set. The general price level is approximated with the Daily Consumer Price Index (Daily CPI).
During low inflation consumer goods and most other prices, including salaries, wages, rents, transport fees, government-administered prices, electricity prices, water, gas, etc., are generally updated once a year in terms of the change in annual inflation. However, the general price level, in fact, changes at least DAILY. This only becomes evident during LOW inflation when a product is actually priced in terms of the CPI when it is bought and sold on a daily basis and thus has to be priced on a daily basis in terms of the DAILY CPI. This happens daily in the global US Dollar 3 Trillion government capital inflation-indexed bond market in many countries where these sovereign bonds have a different price every day in low and high inflation economies set in terms of the DAILY CPI. This is obviously also true for inflation-indexed bonds during high inflation, hyperinflation and deflation.
During hyperinflation consumer prices are generally updated daily, actually every time the parallel rate changes, in terms of the US Dollar black market rate. Everyone in a hyperinflationary economy knows for a fact that the general price level changes daily (or even more often) as consumer prices are adjusted daily, i.e., every time the US Dollar parallel rate changes. At levels of hyperinflation above 1000 percent per annum, everyone in the economy knows that the previous day´s price is meaningless the next day: it has to be updated at least daily in terms of the change in the black market rate. Everyone involved in business and money matters in a hyperinflationary economy with hyperinflation above 1000 percent per annum knows the general price level changes at least daily.
All DAILY US Dollar parallel market rates around the world in high and hyperinflationary countries are proxies for the DAILY general price level in those countries as far as the updating of consumer, property and many other prices are concerned. This excludes consumer prices fixed by the government, for example, currently in Venezuela.
The general price level is indicated by a DAILY Non-Monetary Index that follows ALL changes in the general level of prices, normally at least DAILY changes. It is represented by the Daily CPI during low inflation, high inflation, the initial stage of hyperinflation and deflation.
The general price level is indicated by the DAILY US Dollar parallel rate as from the stage of hyperinflation when the Daily CPI falls too far behind the Daily USD parallel rate. The DAILY real (parallel or black market) foreign exchange rate is then used as a proxy for the general price level. The daily price level as represented by the DAILY US Dollar parallel rate can change more than once per day by a huge percentage during severe hyperinflation. See Hyperinflation in Zimbabwe, Hungary, Yugoslavia and Germany.
All countries that issue government capital inflation-indexed bonds already calculate a Daily CPI. These bonds trade DAILY. They are priced DAILY in terms of the DAILY CPI.
Here are links to some Daily CPIs which indicate the DAILY general price levels in the respective countries:
Chile - UF: Daily Unidad de Fomento Index. Not a Daily CPI, but a monetized daily indexed unit of account based on the CPI.
Turkey - Daily CPI (Click on Reference Indices under CPI Indexed Government Bonds)
The constant purchasing power of capital and all other constant real value non-monetary items, e.g., salaries, wages, rent, taxes, trade debtors, trade creditors, all non-monetary payables, all non-monetary receivables, all profits and losses, all items in shareholders equity, etc. can only be maintained constant in real value in terms of a DAILY INDEX during low inflation, high inflation, hyperinflation and deflation.
Nicolaas Smith
Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
A price index is a normalized average of prices for goods and services within an economy over a given period of time. The best known is the Consumer Price Index (CPI).
The general price level is a hypothetical measure of overall prices of goods and services in an economy over time, normalized relative to some base set. The general price level is approximated with the Daily Consumer Price Index (Daily CPI).
During low inflation consumer goods and most other prices, including salaries, wages, rents, transport fees, government-administered prices, electricity prices, water, gas, etc., are generally updated once a year in terms of the change in annual inflation. However, the general price level, in fact, changes at least DAILY. This only becomes evident during LOW inflation when a product is actually priced in terms of the CPI when it is bought and sold on a daily basis and thus has to be priced on a daily basis in terms of the DAILY CPI. This happens daily in the global US Dollar 3 Trillion government capital inflation-indexed bond market in many countries where these sovereign bonds have a different price every day in low and high inflation economies set in terms of the DAILY CPI. This is obviously also true for inflation-indexed bonds during high inflation, hyperinflation and deflation.
During hyperinflation consumer prices are generally updated daily, actually every time the parallel rate changes, in terms of the US Dollar black market rate. Everyone in a hyperinflationary economy knows for a fact that the general price level changes daily (or even more often) as consumer prices are adjusted daily, i.e., every time the US Dollar parallel rate changes. At levels of hyperinflation above 1000 percent per annum, everyone in the economy knows that the previous day´s price is meaningless the next day: it has to be updated at least daily in terms of the change in the black market rate. Everyone involved in business and money matters in a hyperinflationary economy with hyperinflation above 1000 percent per annum knows the general price level changes at least daily.
All DAILY US Dollar parallel market rates around the world in high and hyperinflationary countries are proxies for the DAILY general price level in those countries as far as the updating of consumer, property and many other prices are concerned. This excludes consumer prices fixed by the government, for example, currently in Venezuela.
The general price level is indicated by a DAILY Non-Monetary Index that follows ALL changes in the general level of prices, normally at least DAILY changes. It is represented by the Daily CPI during low inflation, high inflation, the initial stage of hyperinflation and deflation.
The general price level is indicated by the DAILY US Dollar parallel rate as from the stage of hyperinflation when the Daily CPI falls too far behind the Daily USD parallel rate. The DAILY real (parallel or black market) foreign exchange rate is then used as a proxy for the general price level. The daily price level as represented by the DAILY US Dollar parallel rate can change more than once per day by a huge percentage during severe hyperinflation. See Hyperinflation in Zimbabwe, Hungary, Yugoslavia and Germany.
All countries that issue government capital inflation-indexed bonds already calculate a Daily CPI. These bonds trade DAILY. They are priced DAILY in terms of the DAILY CPI.
Here are links to some Daily CPIs which indicate the DAILY general price levels in the respective countries:
Chile - UF: Daily Unidad de Fomento Index. Not a Daily CPI, but a monetized daily indexed unit of account based on the CPI.
- Venezuela - Today´s Rate USD parallel rate
More countries that issue daily inflation-indexed bonds and thus already calculate a Daily CPI to price these bonds daily are:
France, Canada, Australia, Germany, Greece, Honk Kong, Italy, India, Japan, Sweden, Portugal, South Africa and Brazil.
The constant purchasing power of capital and all other constant real value non-monetary items, e.g., salaries, wages, rent, taxes, trade debtors, trade creditors, all non-monetary payables, all non-monetary receivables, all profits and losses, all items in shareholders equity, etc. can only be maintained constant in real value in terms of a DAILY INDEX during low inflation, high inflation, hyperinflation and deflation.
Nicolaas Smith
Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
Saturday 1 February 2014
Prize for the Best Statement regarding Financial Reporting in 2014-to-date
EUROPEAN ACCOUNTING ASSOCIATION
"Capital maintenance is a competing objective of financial reporting."
Response to Question 26, Comment Letter to the Discussion Paper regarding the Review of the Conceptual Framework, on Page 2 of comment letters, dated 2014-01-24
Thursday 30 January 2014
IAS 29: The IASB´s FANTASY standard
IAS 29 Financial Reporting in Hyperinflationary Economies had NO POSITIVE EFFECT during the 6 years it was implemented in Zimbabwe´s hyperinflationary economy. It was ABSOLUTELY USELESS during that period.
The IASB refuses to admit that. The IASB first has to conduct a special review to investigate what effect IAS 29 had in Zimbabwe, according to Michael Stewart, the IASB´s Director of Implementation Activities. The rest of the world´s accountants and economists generally accept that it is obvious that IAS 29 had no positive effect since the Zimbabwean economy imploded in 2008 during full implementation of IAS 29.
Not a single member of the International Accounting Standards Board and the IFRIC Interpretations Committee today realizes that or would admit that IAS 29 had no positive effect in Zimbabwe.
At IFRIC Interpretations Committee meetings and all other occasions they freely refer to IAS 29 as a fully effective IFRS. IFRIC members are completely oblivious of the fact that IAS 29 had NO POSITIVE EFFECT in Zimbabwe.
LISTEN to IFRIC members referring to and quoting IAS 29 as if it were a fully effective IFRS at the 23 September 2013 IFRIC meeting discussing Capital Maintenance in Units of Constant Purchasing Power. IAS 29 was ABSOLUTELY USELESS during the 6 years it was implemented in Zimbabwe´s hyperinflationary economy.
IFRIC and IASB members make decisions in terms of a 24 year old standard that was ABSOLUTELY INEFFECTIVE during the 6 years it was implemented in Zimbabwe. That is how the IASB and IFRIC operate.
The members of the IFRS Interpretations Committee ignorant of the fact that IAS 29 had NO POSITIVE EFFECT in Zimbabwe are:
The members of the IASB ignorant of the fact that IAS 29 had NO POSITIVE EFFECT IN Zimbabwe are:
The IASB staff are aware of the fact that IAS 29 had no positive effect in Zimbabwe: I confronted Michael Stewart about it during a teleconference on 8 January 2013. He stated the IASB was not able to give an opinion about the effectiveness of IAS 29 in Zimbabwe. According to Stewart the IASB first has to conduct a special review of what happened in Zimbabwe before the IASB can give its opinion about the matter.
The above people appear not to have the simple common sense and judgement to admit that IAS 29 had NO POSITIVE EFFECT in Zimbabwe´s hyperinflationary economy. This is very worrying when the above people are the members of the IFRIC Interpretations Committee and the International Accounting Standards Board. They are highly qualified and very well paid. They are the people entrusted with the task of defining IFRS, BUT they actually live in a fantasy world where IAS 29 - for them - is a fully effective IFRS when it, in fact, was COMPLETELY INEFFECTIVE in Zimbabwe´s hyperinflationary economy.
Michael Stewart very petty-mindedly stopped working with me on this matter when I told him in January 2013 that his statement that "financial reporting has NO EFFECT in the economy" was completely wrong.
We all make mistakes. The IASB, IFRIC and IASB staff are not aware that capital maintenance in units of constant purchasing power - their "restatement" - in terms of the MONTHLY published CPI is a mistake. It has to be Daily Indexing - actually following all changes in the general price level.
They are too prepotent and thus not open to proof of facts as confirmed by Hans Hoogervorst, the Chairman of the IASB. He informed me that the IASB requires "flexibility" to do their work. That is: "flexibility" to believe in their fantasy that IAS 29 is a fully effective IFRS when it, in fact, had NO POSITIVE EFFECT in the Zimbabwean hyperinflationary economy.
Nicolaas Smith
See: How to fix IAS 29
Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
The IASB refuses to admit that. The IASB first has to conduct a special review to investigate what effect IAS 29 had in Zimbabwe, according to Michael Stewart, the IASB´s Director of Implementation Activities. The rest of the world´s accountants and economists generally accept that it is obvious that IAS 29 had no positive effect since the Zimbabwean economy imploded in 2008 during full implementation of IAS 29.
Not a single member of the International Accounting Standards Board and the IFRIC Interpretations Committee today realizes that or would admit that IAS 29 had no positive effect in Zimbabwe.
At IFRIC Interpretations Committee meetings and all other occasions they freely refer to IAS 29 as a fully effective IFRS. IFRIC members are completely oblivious of the fact that IAS 29 had NO POSITIVE EFFECT in Zimbabwe.
LISTEN to IFRIC members referring to and quoting IAS 29 as if it were a fully effective IFRS at the 23 September 2013 IFRIC meeting discussing Capital Maintenance in Units of Constant Purchasing Power. IAS 29 was ABSOLUTELY USELESS during the 6 years it was implemented in Zimbabwe´s hyperinflationary economy.
IFRIC and IASB members make decisions in terms of a 24 year old standard that was ABSOLUTELY INEFFECTIVE during the 6 years it was implemented in Zimbabwe. That is how the IASB and IFRIC operate.
The members of the IFRS Interpretations Committee ignorant of the fact that IAS 29 had NO POSITIVE EFFECT in Zimbabwe are:
| Wayne Upton Chairman, IFRS Interpretations Committee International Director, IASB | |
| Tony de BellGlobal Accounting Consulting Services Leadership Team PwC United Kingdom | 30 June 2016 |
| Luca Cencioni Senior Accounting Manager Eni Adfin S.p.A. Italy | 30 June 2014 |
| Reinhard DotzlawGlobal IFRS Panel KPMG Canada | 30 June 2016 |
| Feilong Li Executive Director, Executive Vice President & CFO China Oil Services Limited People's Republic of China | 30 June 2016 |
| John O'GradyAsia-Pacific IFRS Leader Ernst & Young Australia | 30 June 2015 |
| Jean Paré Vice President, Financial Reporting Bombardier Inc. Canada | 30 June 2014 |
| Joanna Perry Professional Non-Executive Company Director New Zealand | 30 June 2014 |
| Sandra PetersHead of Financial Reporting Policy CFA Institute United States | 30 June 2015 |
| Charlotte PissaridouHead of Accounting Policy for EMEA (Europe, the Middle East and Africa) and Asia Goldman Sachs United Kingdom | 30 June 2014 |
| Laurence Rivat Partner Deloitte & Associes (France) France | 30 June 2015 |
| Dr Martin SchloemerAccounting Principles and Policies Bayer AG Germany | 30 June 2016 |
| Scott A. Taub Managing Director Financial Reporting Advisors, LLC United States | 30 June 2014 |
| Andrew WatchmanExecutive Director of International Financial Reporting Grant Thornton United Kingdom | 30 June 2016 |
| Kazuo YuasaGeneral Manager, Corporate Finance Unit, Fujitsu Limited Japan |
The members of the IASB ignorant of the fact that IAS 29 had NO POSITIVE EFFECT IN Zimbabwe are:
Hans Hoogervorst (Chairman)
Appointed: 1 July 2011
Term expires: 30 June 2016 | |
Ian Mackintosh (Vice-Chairman)
Appointed: 1 July 2011
Term expires: 30 June 2016 | |
|
Appointed: 1 August 2007
Second term expires: 31 July 2017 | |
|
Appointed: 1 July 2006
Second term expires: 30 June 2016 | |
|
Appointed: 1 July 2012
Term expires: 30 June 2017 | |
|
Appointed: 1 May 2004
Second term expires: 30 June 2014 | |
|
Appointed: 1 July 2009
Term expires: 30 June 2014 | |
|
Appointed: 21 February 2013
Term expires: 30 June 2017 | |
|
Appointed 23 May 2013
Term expires: 30 December 2019 | |
Appointed from: 1 July 2009
Term expires: 30 June 2014 | |
|
Appointed: 1 July 2009
Term expires: 30 June 2014 | |
|
Term begins: 1 July 2011
Term expires: 30 June 2016 | |
|
Appointed: 1 October 2010
Term expires: 30 June 2015 | |
|
Appointed: 15 November 2012
Term expires: 30 June 2017 | |
|
| |
|
Appointed: 1 July 2007
Second term expires: 30 June 2017 |
The IASB staff are aware of the fact that IAS 29 had no positive effect in Zimbabwe: I confronted Michael Stewart about it during a teleconference on 8 January 2013. He stated the IASB was not able to give an opinion about the effectiveness of IAS 29 in Zimbabwe. According to Stewart the IASB first has to conduct a special review of what happened in Zimbabwe before the IASB can give its opinion about the matter.
The above people appear not to have the simple common sense and judgement to admit that IAS 29 had NO POSITIVE EFFECT in Zimbabwe´s hyperinflationary economy. This is very worrying when the above people are the members of the IFRIC Interpretations Committee and the International Accounting Standards Board. They are highly qualified and very well paid. They are the people entrusted with the task of defining IFRS, BUT they actually live in a fantasy world where IAS 29 - for them - is a fully effective IFRS when it, in fact, was COMPLETELY INEFFECTIVE in Zimbabwe´s hyperinflationary economy.
Michael Stewart very petty-mindedly stopped working with me on this matter when I told him in January 2013 that his statement that "financial reporting has NO EFFECT in the economy" was completely wrong.
We all make mistakes. The IASB, IFRIC and IASB staff are not aware that capital maintenance in units of constant purchasing power - their "restatement" - in terms of the MONTHLY published CPI is a mistake. It has to be Daily Indexing - actually following all changes in the general price level.
They are too prepotent and thus not open to proof of facts as confirmed by Hans Hoogervorst, the Chairman of the IASB. He informed me that the IASB requires "flexibility" to do their work. That is: "flexibility" to believe in their fantasy that IAS 29 is a fully effective IFRS when it, in fact, had NO POSITIVE EFFECT in the Zimbabwean hyperinflationary economy.
Nicolaas Smith
See: How to fix IAS 29
Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.
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