Constant purchasing power accounting

Constant purchasing power accounting is an accounting model approved by the International Accounting Standards Board (IASB) as an alternative to traditional historical cost accounting under hyper-inflationary environments.) Under this system, financial capital maintenance is measured in units of constant purchasing power (CPP) in terms of a Daily CPI (consumer price index) during low inflation and deflation. It can also be measured in a monetized daily indexed unit of account (e.g. the Unidad de Fomento in Chile) and in terms of a daily relatively stable foreign currency parallel rate or daily index during high inflation and hyperinflation. The stable measuring unit assumption is never implemented under CMUCPP. CMUCPP implements financial CMUCPP – as originally authorized in IFRS in the Framework (1989), Par 104 (a) [now Conceptual Framework (2010), Par 4.59 (a)] which states: "Financial capital maintenance can be measured in either nominal monetary units or units of CPP" as an alternative to the 3000-year-old generally accepted globally implemented traditional historical cost accounting (HCA) model – with differentiated variable and constant real value non-monetary items in terms of a Daily CPI which automatically maintains the real value of capital constant for an indefinite period of time in all entities that at least break even in real value at all levels of inflation and deflation – ceteris paribus. Net constant item losses and gains are calculated and accounted whenever constant items are not measured in units of CPP. Variable real value non-monetary items are valued in terms of IFRS and then updated daily in terms of the Daily CPI. Historical variable items are updated in terms of the Daily CPI because there is no stable measuring unit assumption under CMUCPP. Monetary items - except current period items - are inflation-adjusted in terms of the Daily CPI since the stable measuring unit assumption is rejected under CMUCPP. Net monetary losses and gains are calculated and accounted whenever monetary items are not inflation-adjusted. CMUCPP is a daily price-level accounting model.

CMUCPP automatically maintains the CPP of capital constant for an indefinite period of time in all entities that at least break even in real value at all levels of inflation and deflation (including during hyperinflation as guide-lined in IAS 29) – ceteris paribus – whether they own any revaluable fixed asset or not.

CMUCPP only maintains the real value of all non-monetary items (the entire real or non-monetary economy) relatively stable when these items are valued on a daily basis in terms of a Brazilian-style non-monetary index or daily parallel rate (normally the daily US Dollar parallel rate) during hyperinflation. IAS 29 requires the restatement of Historical Cost or Current Cost period-end financial statements in terms of the period-end monthly published Consumer Price Index during hyperinflation. IAS 29 should be implemented in terms of daily valuation of all non-monetary items in units of CPP in terms of the Daily CPI which would maintain 100 per cent of current period profits constant in real value. IAS 29 thus requires the implementation of financial CMUCPP.

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