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- Title
Historical Cost and Conservatism Are Joint Adaptations That Help Identify Opportunity Cost.
- Authors
Basu, Sudipta; Waymire, Gregory B.
- Abstract
Braun (The ecological rationality of historical costs and conservatism. Accounting, Economics and Law: A Convivium, this issue) argues that the traditional accounting principles underlying the revenue-expense approach such as Historical Cost and Conservatism are ecologically rational in that they help organizations survive better in uncertain economic environments. More importantly, Braun argues that the revenue-expense approach generates new private information, which informs markets and makes them more effective (Hayek, 1945, The use of knowledge in society. The American Economic Review, 35(4), 519–530), as opposed to merely reflecting back market data under the asset-liability approach (e.g. Sunder, 2011, IFRS monopoly: The Pied Piper of financial reporting. Accounting and Business Research, 41(3), 291–306). We try to explicate the nature of the new private information generated jointly by Historical Cost and Conservatism, and how this information facilitates the survival of individual entrepreneurs and organizations in market competition.
- Subjects
HISTORICAL costs (Accounting); CONSERVATISM; ECONOMICS; OPPORTUNITY costs
- Publication
Accounting, Economics & Law, 2019, Vol 9, Issue 1, pN.PAG
- ISSN
2194-6051
- Publication type
Article
- DOI
10.1515/ael-2016-0070