Historical Cost and Conservatism are Joint Adaptations that Help Identify Opportunity Cost

Accounting, Economics and Law--A Convivium, Forthcoming

Fox School of Business Research Paper No. 18-004

35 Pages Posted: 20 Nov 2017 Last revised: 9 Jan 2018

See all articles by Sudipta Basu

Sudipta Basu

Temple University - Department of Accounting

Gregory B. Waymire

Emory University - Department of Accounting

Date Written: July 30, 2017

Abstract

Braun (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, he argues that the revenue-expense approach generates new private information, which informs markets and makes them more effective (Hayek, 1945), as opposed to merely reflecting back market data under the asset-liability approach (e.g. Sunder, 2011). 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.

Keywords: conservatism, historical cost, opportunity cost, knowledge problem, discovery process

JEL Classification: A11, B25, B52, D02, D23, D83, G01, G14, G32, M12, M41, O12, P12

Suggested Citation

Basu, Sudipta and Waymire, Gregory B., Historical Cost and Conservatism are Joint Adaptations that Help Identify Opportunity Cost (July 30, 2017). Accounting, Economics and Law--A Convivium, Forthcoming; Fox School of Business Research Paper No. 18-004. Available at SSRN: https://ssrn.com/abstract=3072731

Sudipta Basu (Contact Author)

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States
215.204.0489 (Phone)
215.204.5587 (Fax)

Gregory B. Waymire

Emory University - Department of Accounting ( email )

Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States
404-727-6589 (Phone)
404-727-6313 (Fax)

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