CIPPA – Constant Item Purchasing Power Accounting

[adsense1]CIPPA is a price-level accounting model which implements the principle of financial capital maintenance in units of constant purchasing power during non-hyperinflationary periods. It would maintain the real value of all constant real value non-monetary items constant in all entities that at least break even, 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 which unknowingly, unnecessarily and unintentionally erodes the real value of that portion of shareholders´equity never maintained constant as a result of insufficient revaluable fixed assets (revalued or not) during low inflation. CIPPA is applicable as a result of the absence of specific IFRS relating to the concepts of capital and capital maintenance and the valuation of specific constant real value non-monetary items.

[linkunit]Constant Purchasing Power Accounting (CPPA) as defined in International Accounting Standard IAS 29 Financial Reporting in Hyperinflationary Economies is the IASB´s inflation accounting model required to be implemented only during hyperinflation under which all non-monetary items (variable and constant real value non-monetary items) are measured in units of constant purchasing power by applying the change in the period-end CPI.

Accountants can freely choose CIPPA to implement a financial capital concept of invested purchasing power. They will thus implement a constant purchasing power financial capital maintenance concept 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.

Reference

Nicolaas Smith,Constant ITEM Purchasing Power Accounting – CIPPA