Constant purchasing power accounting

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Constant purchasing power accounting (CPPA) is an accounting model approved by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) as an alternative to traditional historical cost accounting under hyper-inflationary environments [1] 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 (CPP) in terms of a Daily CPI (consumer price index) 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 (e.g. the Unidad de Fomento in Chile) 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 (1989), Par 104 (a), 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 (CPI) to compensate for the erosion of the real value of money (the monetary medium of exchange) 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 (the functional currency inside an economy) 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

IFRS authorize three basic accounting models:

1. Physical Capital Maintenance. [2]

2. Financial capital maintenance in nominal monetary units or Historical cost accounting (see the Framework (1989), Par 104 (a)).

3. Constant Purchasing Power Accounting (see the Framework (1989), Par 104 (a)).

A. Under Historical cost accounting the underlying assumptions used in IFRS are:

The stable measuring unit assumption (traditional Historical Cost Accounting) 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:

Difference between US GAAP and IFRS

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: (1) physical capital maintenance and (2) financial capital maintenance in nominal monetary units (traditional Historical Cost Accounting) as stated in Par 45 to 48 in the FASB Conceptual Statement 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 (a) in 1989.

Concepts of capital maintenance and the determination of profit

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:

See also

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Financial accounting

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Hyperinflation in Yugoslavia

Between 1992 and 1994, the Federal Republic of Yugoslavia (FRY) experienced the third-longest period of hyperinflation in world economic history. This period spanned 22 months, from March 1992 to January 1994. Inflation peaked at a monthly rate of 313 million percent in January 1994. Daily inflation was 62%, with an inflation rate of 2.03% in 1 hour being higher than the annual inflation rate of many developed countries. The inflation rate in January 1994, converted to annual levels, reached 116,545,906,563,330 percent (116.546 billion percent, or 1.16 × 1015 percent). During this period of hyperinflation in FR Yugoslavia, store prices were stated in conditional units – point, which was equal to the German mark. The conversion was made either in German marks or in dinars at the current "black market" exchange rate that often changed several times per day.


  1. "IFRS Interpretations Committee Meeting : IAS 29 Financial Reporting in hyperinflationary Economies" (PDF). Archived from the original (PDF) on 24 September 2015. Retrieved 24 February 2015.
  3. IFRS, Framework for the Preparation and Presentation of Financial Statements, Par. 102
  4. IFRS, Framework for the Preparation and Presentation of Financial Statements, Par. 103
  5. IFRS, Framework for the Preparation and Presentation of Financial Statements, Par. 104
  6. Constant Purchasing Power Accounting
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