Introduction: Units of Constant Purchasing Power

Historical Cost Accounting is the globally implemented, generally accepted, traditional, basic accounting model used by entities to prepare their financial reporting. It was originally authorized in IFRS in 1989 as an optional (not required) accounting model at all levels of inflation and deflation (including during high inflation and hyperinflation) in the original Framework for the Preparation and Presentation of Financial Statements, Par. 104 (a) which states: ‘Financial capital maintenance can be measured in either nominal monetary units or in units of constant purchasing power.’ HCA is thus not required by IFRS. It is an optional nominal financial capital maintenance basic accounting model. The other optional financial capital maintenance concept authorised in IFRS at all levels of inflation and deflation (including during high inflation AND HYPERINFLATION) is financial capital maintenance in units of constant purchasing power.

The exact wording of the original Framework (1989), Par. 104 (a) is maintained in the current Conceptual Framework (2010), Par. 4.59 (a).

Three concepts of capital maintenance authorised in IFRS

There are thus three concepts of capital and three concepts of capital maintenance authorised in IFRS since 1989 although both the original Framework (Par. 107) and the Conceptual Framework (Par. 4.62) mistakenly state:

‘The principle difference between the two capital maintenance concepts is the treatment of the effect of changes in the prices of assets and liabilities of the entity. The exact same wording maintained here too between the Framework (1989) and the Conceptual Framework (2010).