IFRS comments

New IFRS, Half-Way Up To The Profit Formula^®

The world's best economists tried passionately to create the one and only right period profit calculation system, until the end of the 1970's. At that time, syntax was the ultimate goal also in economics,^[1] like it still is and always will be in hard science, but the solution had not been found.^[2] 'Empirical accounting' has set the tone ever since. From 2005 on, IFRS are the new gospel. The intentions are quite good. However, there is no proof, no single profit figure - emerging after implementation of all IFRS-regulations - which is incontestable. The reference is nowhere to be found. Like traditional accounting (amongst which are the various GAAP-rulings), IFRS are also not measuring. When measuring the period profit of a company, calibration is the main problem. Only after completion of the calibration can one start measuring. Until then all outcomes are absolutely meaningless.

IFRS (International Financial Reporting Standards) acknowledge fair value, e.g. IAS 16 and 39, however, IAS 2 prescribes valuation stock on the basis of FIFO or average unit-cost.

IAS 16 is proven wrong with regard to re-valuation.

IAS 12 provision latent tax: Nominal Value. Indeed, this is correct.

There is much ado about the burden of taxation. For instance the 'methode-Nederstigt' and the 'methode-Van Hoepen', allegations - without any proof. Regarding (further) compilations of latent tax, the valuation of this entry onto the balance sheet, a lot has been written down in economic literature. As if such an outcome is an object to haggle over. Provision latent tax is a derived transitory item. It is valid at this very balance sheet date and is an outcome that does not need nor allow further compilation.

IAS 37 various provisions: Present Value. That's O.K. but talking about PV, the crucial question is 'what discount rate?'. IFRS are either not 'that clear' about what rate, or prescribe a wrong rate.

When, something has been realised, has it become a fact? The dogma dictates: after it has become ready money, hard cash. For that, no theoretical foundation exists. Hard cash is just a form, one of several shapes of value. Every shape has its own risks. Maybe hard cash has the highest risk. IAS 18.14 poses conditions. These are theoretically not correct. They do admit. The reason is: in order to avoid abuse.

IAS 12.61 is fundamentally wrong, tax, re-valuation reserve being charged to equity is wrong (see above, IAS 16 is proven wrong).

IAS 21, foreign currencies should be translated at exchange rates valid on the dates they occur. IAS 21.21: Transactions. Which one? Goods? Money? Of course, assets and liabilities expressed in foreign currencies must be translated into the stated currency at exchange rates valid at the balance sheet date (IAS 21.23).

IFRS acknowledge value differences in some instances e.g. impairment test but not in all cases. Moreover, for instance under regulation IAS 16, fundamental mistakes are still allowed or even prescribed, contradictory to logic. It is never correct to enter direct mutations onto the balance sheet regardless of the profit and loss account.

An asset is a name with a value on a line of the balance sheet. No more, no less. The existing profit calculation systems as well as IFRS make an arithmetical difference between, for instance, non-monetary fixed assets and other assets, which is in flat contradiction to a logical approach. By doing so, profit calculation has been made intricate, and it thereby costs a lot of time, effort and money and what is found in the end doesn’t justify this. Yet at last, IFRS make a good start. For instance regulation IAS 19 'Employee Benefits' revolves around the true values to be entered onto each and every closing balance sheet. The difference of these values at start (i.e. the end of the former period) and end of the period under consideration is the NVD (Nominal Value Difference) belonging to this item, an entry onto the balance sheet. Where one sheep goes, all follow. From zero on, after subtraction of all value differences and taxes, net period profit remains.

Surf to http://www.ssrn.com/author=333079

papers entitled

'New IFRS, Half-Way Up To The Profit Formula^®'

'Measurement of Income Tax on Period Profit'

^[1] At least some economists acknowledged syntax in those days.

^[2] The conclusion at the end of the 1970's, i.e. 'there is no solution', was already at that time de facto incorrect because the only proven thing at the most was and is that the followed road has a dead end.
All existing profit calculation systems follow the same dead-end road. Consequently, something new is necessary.