Economics at your fingertips  

The Ecological Rationality of Historical Costs and Conservatism

Braun Eduard ()
Additional contact information
Braun Eduard: Institute of Management and Economics, Clausthal University of Technology, Julius-Albert Str. 2, 38678 Clausthal-Zellerfeld, Germany

Accounting, Economics, and Law: A Convivium, 2019, vol. 9, issue 1, 30

Abstract: The principles characterizing the traditional revenue-expense approach to accounting cannot be traced back to a distinct event. I argue that they are ecologically rational. Their functionality is the result of cultural evolution, not of unitary human design. This is the reason why the efforts to defend them against the balance-sheet approach endorsed by standard-setters have encountered severe difficulties. Only the latter is clearly based on a coherent model of the economy, namely neoclassical economics. I further argue that a solid basis for explaining the rationale of the culturally evolved accounting principles can be found in behavioral economics. These principles are in line with human behavior as found in numerous laboratory and field experiments. It is especially with respect to Prospect Theory that a close parallel can be identified. I combine this observation with a market process view of the economy. Financial accounting according to the balance-sheet approach does not add new information to the market process; it only summarizes on the firm level information provided by the market. In contrast, the revenue-expense approach provides private information to the market à la Hayek (1945). The revenue-expense approach thus turns out to be congenial to the organization of the market economy.

Keywords: financial accounting; prospect theory; conservatism; historical costs; ecological rationality (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) ... -0013.xml?format=INT (text/html)
Download restriction for institutions: For access to full text, subscription to the journal is required. Individual readers who register with De Gruyter Online get free access.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from

Access Statistics for this article

Accounting, Economics, and Law: A Convivium is currently edited by Reuven S. Avi-Yonah, Yuri Biondi and Shyam Sunder

More articles in Accounting, Economics, and Law: A Convivium from De Gruyter
Bibliographic data for series maintained by Peter Golla ().

Page updated 2019-04-27
Handle: RePEc:bpj:aelcon:v:9:y:2019:i:1:p:30:n:1