Constant purchasing power accounting

(CPPA) is an accounting model approved by the InternationalAccounting Standards Board (IASB) as an alternative to traditional historical cost accounting under hyper-inflationary environments.[1] Under this system,financial capital maintenance is measured in units of constant purchasing power (CPP) in terms of a CPI (consumer price index) during low inflation. During high inflation and hyperinflation it can also be measured in a monetized daily indexed unit of account (e.g. the Unidad de Fomento in Chile) and in terms of a daily relatively stable foreign currency parallel rate or daily index.
Authorized by the IASB during low inflation[edit]
In the IASB´s original Framework (1989), Par 104 (a), CPPA was authorized as an alternative to the traditional HCA model at all levels of inflation and deflation, including during hyperinflation as required in IAS 29. Income statement constant items like salaries, wages, rents, pensions, utilities, transport fees, etc. are normally valued in units of CPP during low inflation in most economies as an annual update. Payments in money for these items are normally inflation-adjusted by means of the consumer price index (CPI) to compensate for the erosion of the real value of money (the monetary medium of exchange) by inflation only on an annual not daily basis. "Inflation is always and everywhere a monetary phenomenon" and can only erode the real value of money (the functional currency inside an economy) and other monetary items. Inflation can not and does not erode the real value of non-monetary items. Inflation has no effect on the real value of non-monetary items.
Net monetary gains and losses authorized during lowinflation and deflation in IFRS since 1989[edit]
Accountants have to calculate the net monetary loss or gain from holding monetary items when they choose the CMUCPP model and measure financial CMUCPP in the same way as the IASB currently requires its calculation and accounting during hyperinflation. The calculation and accounting of net monetary losses and gains during low inflation and deflation have thus been authorized in IFRS since 1989. There are net monetary losses and net monetary gains during low inflation too, but they are not required to be calculated when accountants choose the traditional HCA model.

Net constant item gains and losses are also calculated and accounted under CMUCPP.

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