"The principle of historical cost is still used in accounting when there is a large measure of agreement that it is inappropriate." Discuss.

Synopsis. Historical Cost Accounting is a traditional valuation method as it reflects only on the past cost of the asset, however in the contemporary business environment companies must remain flexible and transparent. This belief has lead to the creation of several other valuation methods, due to word constraints I have focused primarily on Fair Value Accounting as an alternative to Historical Cost Accounting. Although Fair value accounting is a theoretically superior valuation methodology, there are …

…Estate where non-current assets can produce revenue. Historical cost accounting is not the most effective valuation method possibly for businesses, and theoretically Fair Vale Accounting would improve company transparency, flexibility and efficiency. However, the various problems of the current methodology diminish its current popularity. Until Australian Accounting Standards can ensure that regulations are being enforced to guarantee fair value estimates are reliable, verifiable, and auditable, the risk of malpractice shall continue to weaken investor confidence.