HISTORICAL COST ACCOUNTING OR FAIR VALUE ACCOUNTING: A HISTORICAL PERSPECTIVE

Abstract

The two paradigms about the accounting valuation systems are discussed: historical cost accounting and fair value accounting. The advantages and disadvantages of the historical cost accounting and fair value accounting in the historical perspective are balanced. Each of two estimation bases could not resolve all the problems. The value of the items presented in the financial statements is a key aspect, being more dependent on more evaluation systems, that may estimate and reproduce the exact reality of the entity. In 2009, Bignon, Biondi and Ragot argue that the usage of FVA is limited by asymmetries of information, complementarities and specificities. In presence of these conditions, the evaluations based on fair value can endanger the\ud reliability of accounts and introduce the risk of incorporating financial volatility into the accounts. They have chosen for the historical cost. In 2008, Ronen considered the fair value as a methodology that encompasses different approaches for the estimation of exit values. In real economy, the concept of physical maintenance of capital should prevail and, in it, the “original” series should be restricted to the “numeraire” values: cash and cash substitutes. The elements considered as “derivative” value are evaluated by means of the only reliable method: the HCA. This would allow to define, in the most complex generalization, a mixed “system”, where every entity could assess each items that are financial investments then evaluated according to FVA. Then, they are attributed to the first series, and the items belong to a ‘physical combination ordered to the production of income’. Then, they are evaluated according to HCA