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Historical Cost vs Fair Value in Accounting: Consequences for the Quality of Financial Information and the True and Fair View

Author

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  • Claudia Cătălina CIOCAN

    ("Alexandru Ioan Cuza" University of Iași)

Abstract

In the conditions of an accelerated increase of the inflation rate last year and the current geopolitical pressures, a problem arises as to whether using the most relevant measurement basis reflecting economic reality and supporting decision-makers in the decision-making process. This paper analyzes the controversies regarding the effect of measuring items in the financial statements based on historical cost over current value, with an emphasis on fair value. In this respect, referring to a series of theoretical information and examples of the use of the two measurement bases and also a content analysis, we sought to determine which of the two measurement bases is the most relevant for a true and fair view, the consequences of the use of historical cost/fair value on the quality of financial information and on the true and fair view and the measurement methods that are preferred by Romanian listed companies. The achieved results indicate that the choice between historical cost and fair value can be seen as a compromise between relevance and faithful representation, in practice the tendency to resort to a mixed measurement model being shaped over the years, generally resulting by combining the historical cost with fair value. This trend was also confirmed in the case of Romanian companies listed on the Bucharest Stock Exchange, a slight transition from the exclusive use of historical cost to the use of historical cost along with fair value and in certain cases to a balance between the two analyzed measurement bases was observed.

Suggested Citation

  • Claudia Cătălina CIOCAN, 2022. "Historical Cost vs Fair Value in Accounting: Consequences for the Quality of Financial Information and the True and Fair View," CECCAR Business Review, Body of Expert and Licensed Accountants of Romania (CECCAR), vol. 3(10), pages 48-59, October.
    • Handle: RePEc:ahd:journl:v:3:y:2022:i:10:p:48-59
    DOI: 10.37945/cbr.2022.10.07
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    References listed on IDEAS

    as
    1. Christian Blecher, 2019. "The influence of uncertainty on the standard-setting decision between fair value and historical cost accounting under asymmetric information," Review of Quantitative Finance and Accounting, Springer, vol. 53(1), pages 47-72, July.
    2. Ryan McDonough & Argyro Panaretou & Catherine Shakespeare, 2020. "Fair value accounting: Current practice and perspectives for future research," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(3-4), pages 303-332, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    historical cost; fair value; information quality; conservatism; true and fair view;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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