Deloitte and Canadian AcSB support IASB´s delusional view that IFRSs do not permit financial capital maintenance in units of constant purchasing power during non-hyperinflationary conditions

Deloitte and the Canadian Accounting Standards Board support the IASB´s delusional view that IFRSs do not permit financial capital maintenance in units of constant purchasing power during non-hyperinflationary conditions

The IASB in its interpretation of this matter admitted that:

“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.”

Agenda ref 12 STAFF PAPER 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

However the IASB managed to find two supporters - Deloitte and the Canadian Accounting Standards Board - for their delusional view that IFRSs do not permit financial capital maintenance in units of constant purchasing power during non-hyperinflationary conditions.

I suggested to the IASB during these proceedings that they contact top accounting authorities in formerly hyperinflationary countries like Dr Gustavo Franco, the ex-Governor of the Central Bank of Brazil and Dr Cemal Kucusozen from Turkey, but they simply rejected my suggestions. They rather rely on people who had no experience of high and hyperinflation. 

In fact, the IASB Interpretations Committee - in a very petty-minded way - stopped communicating with me, the submitter of this IFRIC request, when I pointed out to Michael Stewart, the IASB´s Director of Implementation Activities that his remark (during a 8 January 2013 teleconference regarding this topic) that "financial reporting has NO EFFECT on the economy" was completely wrong. 

The above views expressed by the IASB, Deloitte and the Canadia Accounting Standard Board carry little weight since they have previously clearly shown that they are clueless about the critical importance of the capital maintenance concept in the accounting framework as directly stated by Australia CPA and the Institute of Chartered Accountants of Australia, specifically about the IASB as follows:

"We think this approach suggests a lack of understanding (by the IASB) about the fundamental role a capital maintenance concept has within the accounting framework."

Canadian accounting authorities demonstrated a similar lack of knowledge about capital maintenance during non-hyperinflationary conditions with the following reply from THE CERTIFIED GENERAL ACCOUNTANTS ASSOCIATION OF CANADA:

"We agree that the IASB should defer its work on capital maintenance until it develops new provisions or revises the extant Standard (IAS 29) on accounting for hyperinflation. "

Canada has no experience of high or hyperinflation. 

Deloitte believes that inflation affects the real value of non-monetary items. Deloitte is similarly clueless about capital maintenance during non-hyperinflationary conditions.

Nicolaas Smith 


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