HISTORIC COST VERSUS FAIR VALUE - Polish Journal of Management Studies

Polish Journal of Management Studies
 ISSN 2081-7452
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Mariana Man, Bogdan Ravas, Liana Gad au


The value of accounting registering based upon historic cost is a sure and checkable value, written in a document that certifies a property right upon a certain good, a debt right or a debt. Historic costs ' evaluation consists in registering goods in-comings into the company's patrimony at their buying cost, namely their historic cost, with no further  modification although the real value changes.

Fair value is the foundation of IFRS referential which displays basic principles, largely inspired by US GAAP, although they are not mentioned by them. Fair value  evaluation is opposed to the principle of prudence, one of the main principles of French accounting law (also taken over by Romanian accounting standards) owing to which only possible losses are registered while potential profits are ignored.  
The issues that occur refer to the impact of the evaluation according to the fair value upon the accounting data of the company, namely upon the balance sheet and the results account drawn out on the basis of the fair value registrations.  At the same time, the evaluation according to the fair value has determined a new foundation in displaying a company's performance. This issue determines the following question:  "Which is closer to the truth and more credible? A result calculated according to the fair value or one which is founded upon historic cost ? "

historic cost, fair value, International Accounting Standards (IAS), International Financial Reporting Standards (IFRS), accounting data, accounting principles, performance


A first stage of the Romanian accounting reform has resorted to the model of historic costs (historic cost represents the origin cost evaluated, measured, and registered  when assets come in and debts are created); accordingly, it has become the evaluation ground generally employed while elaborating financial reports. The reason this evaluation ground has been chosen connects with the importance given to the accuracy of  the obtained data. Later, the model of historic cost has been proved to be irrelevant in a hyper-inflationist economy. IASB's conceptual accounting framework provides a wide range of  choices when electing the evaluation ground as long as the chosen ground provides the reliability and pertinence of the data given by financial reports.
Fair value is one of the evaluation forms that is more and more encountered both at the level of the accounting language and at the level of accounting standards. Fair value accounting wanders from historic prospect and gets closer to the current  prospect of value.

...more in full version


Historic cost is a value that comes from the past, a reason that has generated the accounting principle of historic cost evaluation, which has the quality of  being checkable and objective. Historic cost is considered to be the consequence of two fundamental principles: the principle of monetary standardization and the principle of prudence. Fair value evaluation is opposed to the principle  of prudence owing to which supposed losses are registered but not potential profits.  
The opposition historic cost - fair value is still active between a traditional Europe (especially France) that is reproached its excess of prudence which sometimes determines  certain inertia, and Anglo-Saxon countries that first of all look for a short term profit and favor investors.  
Fair value is a notion that has no concrete and precise definition. It sometimes appears as a sell price on a market while other times it is determined by starting from a theoretical evaluation model and gets closer to an up-dated financial  value. Sometimes it can appear as an objective external reference (when compared with an unidentified buyer on a market) while other times it bears the imprint of the usefulness value of the company' s asset.  
Fair value accountancy has the merit of offering information quite rapidly and consequently of improving transparency on condition that markets function under normal competition.
In order to reach the level of transparency and comparability of accounting information, international accounting standards should be implemented in a manner that allows the providing of detailed and credible accounting data; it is also necessary an improvement of the reporting demands by accounting standards settlers with a view of simplifying them.

Professional authorities should work in order to improve the evaluation of the guiding-books of actions under crisis. It is necessary to elaborate a supplemental guiding-book with a view to determine the fair value of the assets  on inactive markets which are characterized by: few recent transactions, quotations' prices not relying upon current data, prices'  quotation significantly varying during short periods of time or among brokers, abnormal bonus for liquidity risk, important differences between demanded prices and those accepted by the sellers/buyers. In case the market is inactive, one may presume  that transactions' prices have appeared under crisis/ lack of balance and noticeable prices on inactive markets are not adequate indices of fair value.


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Wartoscewidencji ksiegowej oparta o koszt historyczny jest z pewnoscia wartoscia sprawdzalna, zapisana w dokumencie, ktory poswiadcza prawo wlasnosci do okreslonych dobr, prawo do dlugu i dlug. Ocena kosztu historycznego polega na ewidencji  dobr wchodzacych w sklad dziedzictwa przedsiebiorstwa po kosztach zakupu, mianowicie ich koszt historyczny bez dalczych modyfikacji, mimo ze wartosc rzeczywista zmienia sie.  

Realna wartosc rynkowa jest podstawa odniesienia IFRS, ktory przedstawia podstawowe zasady, szeroko proponowane przez US GAAP, chociaz nie sa przez nich wspominane. Realna wartosc rynkowa jest w opozycji do zasady przezornosci, jednej z glownych zasad francuskiego prawa ksiegowego (przejetego takze przez rumunskie standard ksiegowe), zgodnie z ktora tylko mozliwe straty sa ewidencjonowane podczas gdy potencjalne  zyski sa ignorowane  
Podjete zagadnienie odnosi sie do wplywu oceny zgodnie z realna wartoscia rynkowa na podstawie danych ksiegowych przedsiebiorstwa, mianowicie na podstawie bilansu i wynikow  ksiegowych otrzymanych na podstawie ewidencji realnej wartosci rynkowej.  Jednoczsnie, ocena na podstawie realnej wartosci rynkowej okreslila nowe podstawy w prezentacji wydajnosci przedsiebiorstwa. Zagadnienie warunkuje nastepujace pytanie: Ktore  jest blizej prawdy i bardziej wiarygodne ? Wynik obliczony zgodnie z realna wartoscia rynkowa czy ten oparty na koszcie historyczny

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