Constant purchasing power accounting

Constant purchasing power accounting is an accounting model approved by the International Accounting Standards Board and the US Financial Accounting Standards Board as an alternative to traditional historical cost accounting under hyper-inflationary environments and all other economic environments. Under this IFRS and US GAAP authorized system, financial capital maintenance is always measured in units of constant purchasing power in terms of a Daily CPI during low inflation, high inflation, hyperinflation and deflation; i.e., during all possible economic environments. During all economic environments it can also be measured in a monetized daily indexed unit of account or in terms of a daily relatively stable foreign currency parallel rate, particularly during hyperinflation when a government refuses to publish CPI data.

Authorized by the IASB during low inflation

In the IASB's original Framework, Par 104, CPPA was authorized as an alternative to the traditional HCA model at all levels of inflation and deflation, including during hyperinflation as required in IAS 29. Income statement constant items like salaries, wages, rents, pensions, utilities, transport fees, etc. are normally valued in units of CPP during low inflation in most economies as an annual update. Payments in money for these items are normally inflation-adjusted by means of the consumer price index to compensate for the erosion of the real value of money by inflation only on an annual not daily basis. "Inflation is always and everywhere a monetary phenomenon" and can only erode the real value of money and other monetary items. Inflation can not and does not erode the real value of non-monetary items. Inflation has no effect on the real value of non-monetary items.

Net monetary gains and losses authorized during low inflation and deflation in IFRS since 1989

Accountants have to calculate the net monetary loss or gain from holding monetary items when they choose the CMUCPP model and measure financial CMUCPP in the same way as the IASB currently requires its calculation and accounting during hyperinflation. The calculation and accounting of net monetary losses and gains during low inflation and deflation have thus been authorized in IFRS since 1989. There are net monetary losses and net monetary gains during low inflation too, but they are not required to be calculated when accountants choose the traditional HCA model.
Net constant item gains and losses are also calculated and accounted under CMUCPP.

Underlying assumptions

authorize three basic accounting models:
1. Physical Capital Maintenance.
2. Financial capital maintenance in nominal monetary units or Historical cost accounting, Par 104 ).
3. Constant Purchasing Power Accounting, Par 104 ).
A. Under Historical cost accounting the underlying assumptions used in IFRS are:
The stable measuring unit assumption during annual inflation of 26% for 3 years in a row would erode 100% of the real value of all constant real value non-monetary items not maintained under the Historical Cost paradigm.
B. Under Constant Purchasing Power Accounting the underlying assumptions in IFRS are:
A major difference between US GAAP and IFRS is the fact that three fundamentally different concepts of capital and capital maintenance are authorized in IFRS while US GAAP only authorize two capital and capital maintenance concepts during low inflation and deflation: physical capital maintenance and financial capital maintenance in nominal monetary units as stated in Par 45 to 48 in the FASB Conceptual Satement Nº 5. US GAAP does not recognize the third concept of capital and capital maintenance during low inflation and deflation, namely, financial CMUCPP as authorized in IFRS in the framework, Par 104 in 1989.
The three concepts of capital defined in IFRS during low inflation and deflation are:
The three concepts of capital maintenance authorized in IFRS during low inflation and deflation are: