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Despite of having several limitations & flaws in historical cost accounting, its patrons still think it as the standard form of accounting due to its several unique features and conventions. They believe that historical-cost financial statements are more reliable than market value statements. The supporters of historical cost accounting think it possess the following unique advantages:

As historical cost accounting is based on actual transactions, the recorded amounts are reliable and

verifiable and free from management bias.

Historical cost accounting leads to absolute certainty and it fits in perfectly with the cash flow statement. It tells exactly what has been paid or received and therefore there is no doubt about balance sheet amounts. Williamson (2003) argues that historical cost helps the managers to forecast future operational cost based on past data. Without knowing the original cost, future projections are almost hampered.

Under historical cost accounting, there is no scope for manipulation, because the data is supported by sufficient evidences such as: invoices, receipts etc. For fixed interest debt, historical cost accounting measures financial instruments at its issuance yield to maturity over its life, regardless of market yield movements. This constant yield to maturity approach produces a smooth and predictable interest cost or return outcome and valuation.

The market value dissenters argue that the information provided by market value financial statements is unreliable; because it is not based on arm’s length transactions & there is a huge possibility for management to manipulate the bottom line. They contend that if the information is unreliable, it should not be used to make financial decisions. Yuko and Tatsuya (1998) are concerned that the precipitous adoption of market value accounting will have adverse effect on both banks and the financial system as a whole. They believe that earnings based on market values for investment securities are likely to be more volatile than those based on historical cost.

Critics have pointed out the following flaws of market value accounting:

Ramanna and Watts (2007) argues that market values are basically based on unverifiable subjective estimates of managers. Agency theory suggests that managers will take advantage of this unverifiability to manage financial reports in order to extract rents.

Short ridge et al (2006) recommend that it is important to develop reliable methods for measuring market value in order to increase the reliability and credibility of investors in the information reported in financial statements are too critical, especially in the light of recent scandals in financial reporting.

Jackson (2000) suggests that when quoted market price for an asset or liability is not available, the market value based measurement could be estimated by using the best information and techniques available in the circumstances. But most often difficulties occur when making estimates of market value by using inappropriate model本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。