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Historical Cost and Conservatism Are Joint Adaptations That Help Identify Opportunity Cost

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  • Basu Sudipta

    (Fox School of Business, Temple University, Philadelphia, PA, USA)

  • Waymire Gregory B.

    (Goizueta Business School, Emory University, Atlanta, GA, USA)

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.

Suggested Citation

  • Basu Sudipta & Waymire Gregory B., 2019. "Historical Cost and Conservatism Are Joint Adaptations That Help Identify Opportunity Cost," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 9(1), pages 1-13, March.
    • Handle: RePEc:bpj:aelcon:v:9:y:2019:i:1:p:13:n:5
    DOI: 10.1515/ael-2016-0070
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    2. Braun Eduard, 2019. "Concluding Remarks on the Symposium on the Evolutionary Advantage of Cost Accounting and Conservatism," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 9(1), pages 1-3, March.

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