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- Constant purchasing power accounting (CPPA) as defined in International Accounting Standard IAS 29 Financial Reporting in Hyperinflationary Economies is the International Accounting Standards Board´s inflation accounting model under which all non-monetary items (variable and constant real value non-monetary items) in Historical Cost or Current Cost period-end financial statements are restated in terms of the period-end Consumer Price Index (CPI) only during hyperinflation which the IASB describes as an exceptional circumstance. 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 where under only constant real value non-monetary items (not variable real value non-monetary items) are continuously (month after month) measured / valued in units of constant purchasing power (updated) in terms of the monthly CPI only during low inflation and deflation. CIPPA is a price-level accounting model which implements the principle of financial capital maintenance in units of constant purchasing power as authorized in IFRS. CIPPA automatically maintains the constant purchasing power of capital constant forever in all entities that at least break even during inflation and deflation - ceteris paribus. CPPA only maintains the real value of all non-monetary items (the entire real or non-monetary economy) relatively stable when these items are valued on a daily basis in terms of a Brazilian-style non-monetary index or daily parallel rate (normally the daily US Dollar parallel rate) during hyperinflation. IAS 29 (CPPA) simply requires the restatement of Historical Cost or Current Cost period-end financial statements in terms of the period-end Consumer Price Index to make these financial statements more useful during hyperinflation. CIPPA was authorized in IFRS in the IASB's original Framework for the Preparation and Presentation of Financial Statements, Par. 104 (a) in 1989. In terms of the Framework, (1989) Par 104 (a) accountants choose CIPPA to implement a financial capital concept of invested purchasing power, i.e. financial capital maintenance in units of constant purchasing power only during low inflation and deflation instead of the traditional HC concept of invested money. They thus implement a Constant Purchasing Power financial capital maintenance concept by measuring financial capital maintenance in units of constant purchasing power instead of traditional HC nominal monetary units and they 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 updating 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 payables, 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 of International 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 automatically maintains 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 Historical Cost Accounting model under which the real value of that portion of shareholders´ equity never maintained constant with sufficient revaluable fixed assets (revalued or not) are unknowingly, unnecessarily and unintentionally eroded at a rate equal to the annual rate of inflation as a result of the implementation of the very erosive stable measuring unit assumption during low inflation. CIPPA was authorized in IFRS in 1989 as an alternative to the traditional HCA model at all levels of inflation and deflation in the original Framework (1989) 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 specific 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. " It does not state "during hyperinflation. " That is stated in IAS 29 Financial Reporting in Hyperinflationary Economies. The original Framework (1989), Par 104 (a) is thus applicable at all levels of inflation and deflation: i.e. , during low inflation too. Discredited 1970-style CPPA was a form of inflation accounting which tried unsuccessfully - by updating all non-monetary items (variable real value non-monetary items and constant real value non-monetary items) equally by means of the CPI in an unsuccessful attempt to correct the real value eroding effect of the stable measuring unit assumption during high inflation (but not yet hyperinflation) in the 1970´s. CPPA is not the same as CIPPA. Under CIPPA only constant items (not variable items) are updated only during low inflation and deflation. Under successful CPPA all non-monetary items - constant and variable real value non-monetary items - are updated daily in terms of a Brazilian-style non-monetary index or a hard currency parallel rate only during hyperinflation. The CIPPA model presents substantial benefits, for example, automatically maintaining banks' and companies' existing capital base constant for an indefinite period of time in all entities that at least break even when only constant real value non-monetary items (not variable items) are updated by means of the CPI during low inflation and deflation thus automatically maintaining instead of continuously eroding the real value of shareholders´ equity at a rate equal to the annual rate of inflation. Variable items are valued in terms of IFRS or GAAP. Monetary items cannot be inflation-adjusted or updated and they are valued at their original nominal values during the current accounting period under all accounting and economic models. Certain income statement constant real value non-monetary items, most notably salaries, wages, rentals, etc. are updated on an annual basis by means of the CPI, that is, valued or measured in units of constant purchasing power during low inflation, in most economies implementing the traditional HCA model. They are, however, thereafter paid on a monthly basis by applying the stable measuring unit assumption; i.e. they are not updated monthly. IFRS specifically require the CPPA inflation accounting model to be used only during hyperinflation as per IAS 29.
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