Power Accounting

Constant item purchasing power accounting (CIPPA)is the IASB's basic accounting alternative authorized in IFRS in 1989 as an alternative to traditional historical cost accounting whereunder only constant real value non-monetary items (not variable real value non-monetary items) are measured in units of constant purchasing power (inflation-adjusted) during low inflation and deflation. Both CPPA and CIPPA are price-level accounting models which use the principle of financial capital maintenance in units of constant purchasing power. CPPA uses it to maintain the real value of all non-monetary items during hyperinflation. Under CIPPA only constant real value non-monetary items (not variable real value non-monetary items) are measured in units of constant purchasing power during low inflation and deflation respectively. IAS 29 (CPPA) requires the updating of all non-monetary items (both variable and constant real value non-monetary items) by means of the Consumer Price Index during hyperinflation. CIPPA as authorized in IFRS in the IASB´sFramework for the Preparation and Presentation of Financial Statements, Par. 104 (a) in 1989 requires the inflation-adjustment (measurement in units of constant purchasing power) of only constant real value non-monetary items by means of the CPI during non-hyperinflationary periods. In terms of theFramework, Par 104 (a) accountants can choose CIPPA to implement a financial capital concept of invested purchasing power, i.e. financial capital maintenance in units of constant purchasing power during low inflation and deflation instead of the traditional HC concept of invested money. They will thus implement a Constant Purchasing Power financial capital maintenance concept by measuring financial capital maintenance in units of constant purchasing power instead of the traditional HC nominal monetary units and they will implement a Constant Purchasing Power profit/loss determination concept in units of constant purchasing power instead of in real value eroding nominal monetary units during low inflation. CIPPA simply means inflation-adjusting only constant real value non-monetary items, e.g., issued share capital, retained income, capital reserves, all other items in shareholders´ equity, trade debtors, trade creditors, provisions, deferred tax assets and liabilities, all other non-monetary payable, all other non-monetary receivables, salaries, wages, rentals, all other items in the income statement, etc, by means of the consumer price index (CPI) while valuing variable real value non-monetary items, e.g., property, plant, equipment, listed and unlisted shares, inventory, foreign exchange, etc., in terms ofInternational Financial Reporting Standards (IFRS) at for example fair value, market value, recoverable value, present value, net realizable value, etc. or Generally Accepted Accounting Principles (GAAP) during non-hyperinflationary periods. Monetary items are always valued at their original nominal HC monetary values in nominal monetary units during the current accounting period under all accounting and economic models because it is impossible to inflation adjust money and other monetary items, monetary items being money held and other items with an underlying monetary nature.

Monetary items, variable real value non-monetary items and constant real value non-monetary items are the three fundamentally different basic economic items in the economy.

CIPPA would maintain the real value of all constant real value non-monetary items constant in all entities that at least break even - ceteris paribus - including banks´ and companies´ capital base, for an unlimited period of time (forever) - all else being equal, whether these entities own revaluable fixed assets or not and without the requirement of additional capital from capital providers in the form of extra money or extra retained profits simply to maintain the existing constant real non-monetary value of existing constant items constant. This is opposed to the traditional HCA model under which HC accountants are unknowingly, unnecessarily and unintentionally eroding the real value of that portion of shareholders´equity never maintained constant as a result of insufficient revaluable fixed assets (revalued or not) under HCA during low inflation. CIPPA was authorized by the IASB in 1989 as an alternative to the traditional HCA model at all levels of inflation and deflation in the Framework and is applicable as a result of the absence of specific IFRS relating to the concepts of capital and capital maintenance and the valuation of constant real value non-monetary items. 

• The Framework, Par. 104 (a) states:

• "Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power."