Historical Cost and Conservatism are Joint Adaptations that Help Identify Opportunity Cost
Accounting, Economics and Law--A Convivium, Forthcoming
35 Pages Posted: 20 Nov 2017 Last revised: 9 Jan 2018
Date Written: July 30, 2017
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: Suggested Citation