[1][2] For example, in countries experiencing hyperinflation the International Accounting Standards Board requires corporations to implement financial capital maintenance in units of constant purchasing power in terms of the monthly published Consumer Price Index.
This does not result in capital maintenance in units of constant purchasing power since that can only be achieved in terms of a daily index.
Most principles of historical cost accounting were developed after the Wall Street crash of 1929, including the presumption of a stable currency.
Second, since the numbers on financial statements represent dollars expended at different points of time and, in turn, embody different amounts of purchasing power, they are simply not additive.
"In most countries, primary financial statements are prepared on the historical cost basis of accounting without regard either to changes in the general level of prices or to increases in specific prices of assets held, except to the extent that property, plant and equipment and investments may be revalued.
During a period of high inflation in the 1970s, the FASB was reviewing a draft proposal for price-level adjusted statements when the Securities and Exchange Commission (SEC) issued ASR 190, which required approximately 1,000 of the largest US corporations to provide supplemental information based on replacement cost.
When a company operates in a country where there is a significant amount of price inflation or deflation, historical information on financial statements is no longer relevant.
To counter this issue, in certain cases, companies are permitted to use inflation-adjusted figures, restating numbers to reflect current economic values.
[10] The International Accounting Standards Board defines hyperinflation in IAS 29 as: "the cumulative inflation rate over three years is approaching, or exceeds, 100%.
"[15] IAS 29 Financial Reporting in Hyperinflationary Economies is the IASB's inflation accounting model authorized in April 1989.
IAS 29 requires the implementation of financial capital maintenance in units of constant purchasing power in terms of the monthly published CPI.