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THE COMPARISON OF FAIR VALUE CONCEPT AND HISTORICAL COST CONCEPT APPLICATION IN FINANCIAL REPORTING –HOWMUCH DOES THESE TWO CONCEPTS ACTUALLY DIFFER?

Current International Financial Reporting standard prefer the application of fair value concept in subsequent measuring assets and liabilities in financial statements. Besides, the fair value concept is also preferred by the major stakeholders such as investors and creditors on capital markets because this concept requires that assets and liabilities should be measured at their fair values at the reporting date. Since fair value concept is initially based on market prices of corresponding assets and liabilities, investors and creditors on capital markets consider the fair value concept as the most appropriate one in measuring assets and liabilities. On the other hand, historical cost concept, which was the most dominant concept since 1990s, requires that assets and liabilities should be measured at cost of purchase or acquisition calculated at the day of acquiring the assets. Since this concept evaluates assets and liabilities at their historical cost, investors and creditors on capital markets consider that this concept doesn’t provide useful information regarding the value of assets and liabilities. This paper aims to discuss to what extend fair value concept and historical cost concept differ in certain economic conditions.

historical cost concept, fair value concept, financial reporting

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