International Accounting Standards Board
International Accounting Standards Board (IASB) describes Historic Cost as “measurement provide monetary information about assets, liabilities and related income and expenses, using information derived at least in part, from the transaction or other events” (IFRS,51) Historic cost doesn’t reflect changes in value except to the extent that those changes relate to the impairment of an asset(IFRS,51).
An Advantage of Historic Cost is the Objectivity of Information. This means that the values within the Financial statements will not be affected by any subjected increases or decreases. Historical cost isn’t based on any valuation techniques, so it will be unlikely for information within the income statement to be manipulated by Management. (Short ridge et all 2006) Reported amounts are easy to access (Verifiable) so if needed, People can go back to source documents with Business Transactions to verify the accuracy of Accounting information. Another Advantage of Historic cost is Understandability of information. If information provided already exists and information cannot be amended, this will make determination of information easier therefore requiring accountants less time in recording data and makes inspection for Auditors Easier too. Historical cost is also reliable- IASB has a framework which mentions this key characteristic in Financial Reporting. As Historical cost is a value which was produce in the past, this can determine information more reliably than other current valuations e.g. fair price. This ensures that users will not receive excess benefits (Alexander and Nobes:181).
A potential Disadvantage of Historical Cost is Relevance. Since Historic Cost is based on Past values, this cannot provide potential companies accurate information about future events. This also give companies guidance about future performance, Financial Status and Future Investments