While historical-cost accounting
may have delayed the delivery of some market information on distressed companies, there are a lot of sources of information.
During that crisis, thrifts were using historical-cost accounting
. This means that they carried mortgage assets at book values that were far above market values.
assets by using historical-cost accounting in the years leading up to
be more complex, for historical-cost accounting can only
As this incident reveals, the historical-cost accounting system has
Historical-cost accounting intentionally puts the onus on conservative measurement so that the worst-possible scenario will be reported as the financial position.
Relevance of historical-cost accounting versus fair-value accounting.
With the emphasis of accounting shifting to the income statement, other accounting principles like objectivity and matching were used to support historical-cost accounting. The American Accounting Association (AAA 1936,188) supported the view that "accounting is thus not essentially a process of valuation, but the allocation of historical costs and revenues to current and succeeding fiscal periods." Attaching historical cost to assets was thus a residual consequence.
On the other hand, criticisms of historical-cost accounting had also been prevalent.
After the two World Wars, historical-cost accounting was also under attack by the public due to the fact that inflation had become more important.
Under the historical-cost accounting model, the investor has not realized a loss, even though the economic value of the investments has declined.
These outcomes are a consequence of the transaction-oriented, historical-cost accounting framework, under which gains and losses on investments are often reported only at the time they are sold.