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Historical cost under attack

According to Shanahan:
The hints are coming thick and fast: historic cost
accounting has had it. Balance sheets that contain
outdated cost prices or valuations that dont represent
current market value can hardly be said to be true and
fair. Does knowing what an asset cost several years ago
help investors assess whether a company is a worthwhile
investment? It has long been accepted at law that a
balance sheet is not a valuation statement but do users
of account know this?

The move away from traditional historical cost reporting

is probably best reflected in paragraph 101 of the IASB
Framework, which recognizes the blending of
alternative costing methods and the perceived benefits
of current cost accounting as follows:
the measurement basis most commonly adopted by entities
in preparing their financial report is historic cost. This is
usually combined with other measurement bases. For
example, inventories are usually carried at the lower of cost
and net realizable value, marketable securities may be carried
at market value and pension liabilities are carried at their
present value. Furthermore, some entities use the current cost

A joint project paper issued in May 2005 comparing the

frameworks of the IASB (adopted by Australia) and the
US Financial Accounting Standards Board (FASB) states:
Measurement is one of the most underdeveloped areas of
two frameworks.. Both the IASB and the FASB frameworks
contain list of measurement attributes that are used in
practice. Those lists are broadly consistent, and comprise
historic cost, current cost, gross or net realizable (settlement)
value and present value. Both frameworks indicate that the
use of different measurement attributes is expected to
continue. However, neither provides guidance on how to
choose between different measurement attributes that exist.
In other words, the frameworks lack fully developed

In the new accountant on 25 June 1992, Michael Gillian,

Chairman of the G00, was quoted as saying:
The accounting framework is based on the historic cost
concept. The piecemeal introduction of present value
measurement into Australian standards is unacceptable
without debate as the balance sheet represents.

A mixed measurement system and

International Standards
Although market valuations are implied in the fair
value approach in some international financial
reporting standards, the approach has been
implemented in a crude fashion basically because
accounting regulators do not have a theoretical concept
of valuation, capital maintenance or income measures.
Staubus argues that they have not really adopted a
decision-usefulness theory. Instead they have adopted
their own term attributes of an asset or liability
instead of distinct measurement methods. This has led
to a mixed measurement system.