Historical cost accounting: Difference between revisions
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''Financial reporting - accounting practices - measurement.'' | ''Financial reporting - accounting practices - measurement.'' | ||
Historical cost accounting is the usual traditional basis of measurement in published financial statements, based on the | Historical cost accounting is the usual traditional basis of measurement in published financial statements, based on the original cost of assets to the reporting entity. | ||
It was generally favoured because historical cost is an objective measure which can be relatively easily verified, for example by an auditor. | It was generally favoured because historical cost is an objective measure which can be relatively easily verified, for example by an auditor. | ||
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The use of historical cost accounting can however be challenged on conceptual grounds, especially in times of high inflation or volatility in current market values. | The use of historical cost accounting can however be challenged on conceptual grounds, especially in times of high inflation or volatility in current market values. | ||
For this reason, fair value accounting supplements and replaces historical cost accounting for a number of items. Fair value measurement is based much more closely on current market values. | |||
For this reason, fair value accounting supplements and replaces historical cost accounting for a number of items. | |||
Fair value measurement is based much more closely on current market values. | |||
== See also == | == See also == | ||
* [[Accounting]] | |||
* [[Amortised cost]] | * [[Amortised cost]] | ||
* [[Current cost accounting]] | * [[Current cost accounting]] | ||
Latest revision as of 23:53, 6 July 2022
Financial reporting - accounting practices - measurement.
Historical cost accounting is the usual traditional basis of measurement in published financial statements, based on the original cost of assets to the reporting entity.
It was generally favoured because historical cost is an objective measure which can be relatively easily verified, for example by an auditor.
The use of historical cost accounting can however be challenged on conceptual grounds, especially in times of high inflation or volatility in current market values.
For this reason, fair value accounting supplements and replaces historical cost accounting for a number of items.
Fair value measurement is based much more closely on current market values.
