IDEAS home Printed from https://ideas.repec.org/a/ahd/journl/v3y2022i10p48-59.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://www.ceccarbusinessreview.ro/historical-cost-vs-fair-value-in-accounting-consequences-for-the-quality-of-financial-information-and-the-true-and-fair-view-a259d/download-PDF/
    Download Restriction: no
    File URL: https://www.ceccarbusinessreview.ro/historical-cost-vs-fair-value-in-accounting-consequences-for-the-quality-of-financial-information-and-the-true-and-fair-view-a259a/abstract/
    Download Restriction: no
    File URL: https://libkey.io/10.37945/cbr.2022.10.07?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. 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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Joohyung Ha, 2021. "Bank accounting conservatism and bank loan quality," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(3-4), pages 498-532, March.
    2. Estibaliz Goicoechea & Fernando Gómez-Bezares & José Vicente Ugarte, 2021. "Improving Audit Reports: A Consensus between Auditors and Users," IJFS, MDPI, vol. 9(2), pages 1-25, April.
    3. Wessel M Badenhorst & Rieka von Well, 2023. "The Value‐relevance of Fair Value Measurement for Inventories," Australian Accounting Review, CPA Australia, vol. 33(2), pages 135-159, June.
    4. Inês Pinto & Ana Isabel Morais, 2022. "Classification of Equity Instruments under IFRS 9: Determinants and Consequences," Australian Accounting Review, CPA Australia, vol. 32(4), pages 411-426, December.
    5. Esraa Esam Alharasis & Ahmad Saleem Tarawneh & Maha Shehadeh & Hossam Haddad & Ahmad Marei & Elina F. Hasan, 2022. "Reimbursement Costs of Auditing Financial Assets Measured by Fair Value Model in Jordanian Financial Firms’ Annual Reports," Sustainability, MDPI, vol. 14(17), pages 1-21, August.
    6. Black, Dirk & Neururer, Thaddeus, 2024. "Do analysts provide information about other comprehensive income in book value forecasts for financial firms?," Advances in accounting, Elsevier, vol. 64(C).
    7. Darren Henderson, 2022. "Fair values and compensation contracting: Evidence from real estate firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(5-6), pages 627-657, May.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ahd:journl:v:3:y:2022:i:10:p:48-59. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Radu CIOBANU (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.