Abstract: Historical cost principle is the cornerstone of traditional accounting theory. In the modern accounting environment, the change of accounting measurement center from cost measurement to value measurement will inevitably lead to a complete change of accounting concept. The pillars of traditional accounting theory, including accrual basis, reliability principle, conservatism and the definition of accounting elements, have been impacted to varying degrees, but in this process, the principles of full disclosure and substance over form have emerged.
Historical cost measurement is the core of traditional accounting measurement. In the relatively stable traditional accounting environment that emphasizes income measurement, historical cost is widely praised for its objectivity, verifiability and advantages in reflecting the performance of asset management responsibilities. However, since the 1970s, the modern accounting environment and the demand of information demanders for accounting information have undergone fundamental changes. Global inflation has prompted the current cost method and other inflation measurement models to be put forward in time; With the great changes in the world economic situation, high-tech has been widely adopted, the development of information technology, large-scale enterprise mergers and acquisitions, and the continuous innovation of derivative financial instruments, coupled with the increasing demand of accounting information users for the relevance and full disclosure of accounting information decisions, historical cost measurement has been seriously challenged. The basis of value measurement, such as fair value and present value of future cash flow, can reflect the changes and risks of asset value with the change of economic environment in time, and has high decision-making relevance. It can also disclose accounting information such as self-created goodwill, derivative financial instruments and human resources that traditional accounting can't handle, so that the balance sheet can better reflect the enterprise value and improve the position of accounting information in the economic information system. Thus, it broke the myth that the historical cost method "unified the world" and caused the change of accounting measurement mode.
Historical cost measurement is an important part of traditional accounting theory, which is closely related to other parts of traditional accounting theory and embodies all aspects of traditional accounting concepts. The change of accounting measurement mode will inevitably lead to the change of traditional accounting concepts. Therefore, the fundamental improvement of accounting theory will probably begin with the reform of accounting measurement mode.
First, the dilemma of reliability and relevance.
Under the traditional accounting model, reliability is the most important requirement for the quality of accounting information. The principle of reliability is closely related to the principle of historical cost and the principle of conservatism, which reflects the traditional value orientation of accounting, that is, accounting should pay attention to afterwards reflection, be objective, neutral and conclusive, and exclude subjective estimation and prediction, so as to reduce the financial risk of users of accounting statements and further reduce the professional risk of accountants.
For today's investors, creditors and other users of accounting information, in order to be useful for decision-making, accounting information must also be able to help users predict the outcome of future events, or confirm and correct the expected situation, thus having the ability to influence decision-making. Relevance is the ability of accounting information to influence judgment and decision-making and decision-making differences.
It is difficult to meet the requirements of reliability and correlation. Reliability is the quality feature of accounting information facing the past, and relevance is the quality feature of accounting information facing the future. The purpose of reliability is to reflect afterwards, and the purpose of correlation is to make decisions; The requirement of predictability and timeliness in correlation may affect the reliability of information, but the pursuit of complete reliability ignores the timeliness and predictability of information, and the correlation of reliable information will be greatly weakened.
Historical cost measurement is the most reliable of all accounting measurement methods, and more relevant value measurement will replace it as the center of accounting measurement, which is undoubtedly the result of the balance of reliability and correlation. We can clearly understand that, first of all, the reliability of historical cost is relative, and there are a lot of confirmation, calculation, distribution and substitution in historical cost method, which makes the calculation of profit and loss seriously inaccurate. Secondly, the impact of inflation and the new concept of assets in the era of knowledge economy has dealt a fatal blow to the fundamental advantage of historical cost method-reliability. Taking nominal money as the unit of measurement and historical cost as the measurement attribute, in the environment of price changes, it can neither reflect the general price changes caused by inflation nor reflect the individual value changes of the measured object, so historical cost is no longer reliable. However, such as goodwill, technology, human resources, derivative financial instruments, etc. There may be no historical cost to follow. Therefore, no matter from the objective reality or from the performance of historical cost method itself, it is untenable to emphasize cost measurement and exclude value measurement under the pretext of reliability.
Second, the disadvantages of the principle of conservatism
Conservatism can be said to be the "value orientation" of managers, auditors, investors and accountants. People define it as "accountants should underestimate assets and income and overestimate liabilities and losses". The essence is that people take a cautious or conservative attitude towards various uncertain factors when they are engaged in economic activities.
Conservatism can be traced back to the strategy adopted by the property trustee in the Middle Ages to relieve the fiduciary responsibility-not expecting the appreciation of the entrusted property to become a self-protection way for the trustee to reduce the responsibility. This consideration of reducing responsibility is gradually recognized by the accounting community in the future. For similar reasons, American accounting circles began to discuss the conservatism principle at the beginning of this century. However, after the economic crisis in the 1930s, people thought that the flood of accounting reports boasting about profits and whitewashing business prospects before the great crisis led to "blind" optimism in the face of the economy, which was an important reason for the great crisis. Thus, the position of conservatism was finally established.
However, the biggest criticism of conservatism is that while emphasizing conservatism, it loses the reliability and relevance of accounting information, which can best show this drawback in the field of accounting measurement. First, under the principle of conservatism, people only tend to confirm contingent liabilities or losses, but not contingent assets; It only accepts the measurement of assets at historical cost, but does not accept the prediction and estimation of asset value, ignores the essential characteristics that assets can bring cash inflow to enterprises, and only emphasizes the verifiability of asset value, thus rejecting accounting information of great value to users of accounting information in enterprises from accounting reports. Second, it only reflects uncertain losses and does not reflect uncertain gains. For example, for accounts receivable
Provision can be made for bad debt losses, but it can't reflect the income of asset holdings and the income of derivative financial instruments caused by price changes. This conservatism at the expense of the authenticity of accounting data is out of date today, when accounting information users have high requirements for the principles of "full disclosure" and "importance", and there is a great investment decision-making risk hidden behind it.
Third, the confusion of accrual basis.
Accrual basis, like historical cost principle, is the theoretical pillar of traditional accounting, including income realization principle and expense matching principle. However, these two principles have encountered difficulties in the modern accounting environment.
The income realization principle of traditional accounting, also known as income recognition rules, includes the following three contents: the occurrence of transactions and events, the measurability of asset value, and the basic completion of income process. But they are all influenced by the demand of modern accounting measurement to varying degrees.
(1) The occurrence of transactions and events. The traditional accounting concept holds that an enterprise must be a participant in a transaction, and emphasizes the sale of goods and services as the basis for confirming operating income. Because of this emphasis, people naturally think that historical cost is the most practical basis for asset evaluation, which provides objective and reliable evidence for accounting records. However, in the modern economic environment, value measurement can still be a tool for asset measurement, even if the economic business and sales business of enterprises did not actually happen in the past. The recognition and measurement of self-created goodwill is not based on the occurrence of enterprise merger and acquisition business; The initial measurement basis of derivative financial instruments is only the contract that proves that risks and rewards have been transferred to the enterprise, not the actual transaction, and its re-measurement basis is not the actual transaction, but the unrealized fair market value. So this principle seems to be passively shaken to some extent.
(2) The measurability of asset value. Operating income under accrual basis is the assets that flow into the enterprise for providing goods or services in a certain period of time. If the value of an asset cannot be measured objectively, then it should not be regarded as operating income. However, in modern accounting business, the value of many future cash inflows is uncertain, and its value can only be determined by forecasting and estimating; It can be seen that the measurability of asset value is somewhat loose as the income realization standard.
(3) The income process is basically completed. The principle of revenue recognition holds that, under normal circumstances, operating income will be fully realized after a business cycle or the completion of the revenue process (receiving cash or obtaining the right to withdraw cash). However, the reality is that self-created goodwill, derivative financial instruments and human resources can be measured whether the income process is completed or not, and the valuation of the held income in inflation accounting and derivative financial instruments accounting has not been tested.
Consider whether it has really come true.
The cost matching principle in traditional accounting holds that expenses are the resources consumed to generate operating income. Therefore, expense recognition and income recognition are closely related, and expense recognition cannot be carried out in isolation or separated from the occurrence of income. Therefore, the confirmation of expenses is also called expense ratio. If there is no direct relationship between expenses and income, it must be confirmed through systematic and reasonable allocation. This process of expense allocation is the most important practice of traditional accounting, but it is also the focus of modern accounting criticism. Because the cost allocation process seems to be based on historical cost, it is objective and verifiable, but subjective judgment and estimation are full of it. Whether it is inventory valuation, depreciation of fixed assets or allocation of indirect expenses, there are many methods and choices, and the calculation of profit and loss has almost become a process that can be adjusted at will. This is also where the reliability of historical cost valuation is criticized.
In addition, the future cash inflow or outflow brought by knowledge and financial assets is extremely uncertain, and the corresponding income and expenses are also uncertain. If such income and expenditure barely match, it is difficult to explain the profit and loss of the enterprise. It is better to simply adopt the cash flow system corresponding to accrual basis, but manual distribution and estimation can be avoided.
Fourthly, the increasingly important principle of full disclosure and the principle of substance as form.
In traditional accounting theory, the principles of full disclosure and substance over form are far from being taken seriously, such as reliability, historical cost and accrual basis. However, with the disadvantages of traditional accounting centered on historical cost principle being gradually recognized by people, the principles of full disclosure and substance over form are attracting more and more attention.
In recent years, the criticism of traditional accounting statements mainly focuses on: ① adopting historical cost valuation, which leads to serious distortion of information; ② Important information such as self-created goodwill, human resources and derivative financial instruments cannot be reflected; ③ There are too many artificially adjusted elements in the profit and loss data, which can't reflect the real situation of the enterprise; (4) only reflect the operating profit and loss, not the return on assets, and can not fully reflect the operating results of the enterprise; ⑤ Regular compilation, poor timeliness, and information users can only get outdated information; ⑥ Based on past transactions and events, there is too little information reflecting future trends; ⑦ The source of report data is complex, and there are too many accounting treatments to choose from, which makes the readability of the report completely lost; Today, the compilation and composition of statements are too complicated, which increases the professional risk of certified public accountants. As can be seen from the above criticism, in addition to the criticism of the reporting system itself, the lack of disclosure of accounting information is the main criticism of accounting statements. With the rapid development of social economy, the scope of accounting information that enterprises need to disclose is constantly expanding. According to the principle of full disclosure accounting, accounting entities should disclose all important economic information, which includes three requirements: comprehensiveness, appropriateness and fairness. There is a problem of insufficient information disclosure in the current statements, which is rooted in the shortcomings of cost measurement and traditional accounting confirmation methods. Articles ①-④ and ⑥ of the above criticism are not so much the disadvantages of the current reporting system as the disadvantages of historical cost measurement, which not only causes the distortion of accounting information, but also causes the loss of important accounting information. Therefore, the emphasis on the principle of full disclosure has substantially promoted the reform of accounting recognition and measurement methods.
The principle that substance is more important than form can be understood as follows: because the economic substance of a transaction or event is not always consistent with the legal form, accounting, as an economic information system, should be confirmed, measured and disclosed according to the substance rather than the form of the transaction or event. Specifically,
The criterion should be whether the occurrence of economic business leads to the transfer of related risks and rewards.
In fact, the principle of attaching importance to substance over form is exactly the same as the principle of attaching importance to the relevance of accounting information, which unifies the two accounting behavior norms under the financial goal of providing useful information for decision-making, while the traditional accounting theory prevents the useful information for decision-making from entering the accounting reporting system from three aspects: the definition of financial statement elements, accounting confirmation standards and accounting measurement standards. Among them, the historical cost method excludes the disclosure of transactions and events that lead to substantial changes in the risk and reward of enterprises from the measurement possibility. The appearance of fair value and other forms of value measurement has broken the rules and regulations in the field of measurement, enabling financial contracts, intellectual property and other important information to be measured. The change of accounting measurement basis reflects people's pragmatic spirit in the principle that substance is more important than form, and will eventually promote the disclosure of accounting information reflecting the essence of transactions and events.
Verb (abbreviation for verb) redefines the elements of financial statements.
In the announcement of 1989, the international accounting standards board proposed that the definition of accounting elements must include two conditions: first, any future economic benefits related to the project are likely to flow into or out of the enterprise; Secondly, the cost or value of the project can be measured reliably.
It can be seen that the definition of traditional financial statement elements is the confirmation of the results of past transactions or events. Although we are concerned about the future, the information we are concerned about and to be confirmed is historical information. Therefore, the use of cost measurement to reflect the specific amount of accounting elements conforms to the traditional definition of accounting elements.
The traditional definition of accounting elements emphasizes three points: first, accounting elements originate from past transactions; The second is to determine the direction of future economic benefits inflow or outflow; Third, determine the amount of future economic benefits flowing in or out. However, in the modern accounting environment, some important transactions and events cannot meet the above three conditions at the same time or at the same time, among which derivative financial instruments are the most representative. First of all, the performance of the main economic business stipulated in most derivative financial instrument contracts is based on the future rather than the past. In the past, only a small amount of commitment fees or deposits occurred, while the dominant contract objectives all occurred in the future. Secondly, it is difficult to determine the inflow and outflow direction of future economic benefits or resources. For example, in the two-way option transaction, the contract buyer can exercise both the buyer's option and the seller's option, so some economic resources may flow out or flow in. Finally, the cost and fair market value of derivative financial instruments cannot be accurately measured. Others, such as self-created goodwill and human resources, do not fully conform to the traditional definition of accounting elements. If these transactions and events are excluded from the financial statements, even in the form of notes or supplementary statements, these highly relevant information can not be fully revealed. Based on the principle of "substance is more important than form", this kind of accounting information should be confirmed by accounting statements.
Therefore, the requirement of redefining the elements of financial statements naturally arises. The definition of derivative financial instruments is carried out under this requirement, and some progress has been made. IASC put forward two criteria for initial recognition of financial assets and financial liabilities in its No.48 draft for comments (financial instruments) (ED48), namely: (1) All risks and rewards related to financial assets or financial liabilities have been substantially transferred to the enterprise; (2) The cost or fair value of financial assets acquired or financial liabilities undertaken by an enterprise must be reliably measurable.
Although definability is not directly put forward in the above two standards, it can be considered that it actually implies the standard of "definability" because the premise of its definition is the initial recognition of financial assets and financial liabilities. IASC's definition of financial assets and financial liabilities is a breakthrough in the definition of assets and liabilities in the current accounting theory, that is, financial assets not only refer to cash and ownership instruments given to another enterprise, but also include the contractual right to receive cash or another financial asset from another enterprise and the contractual right to exchange financial instruments with another enterprise under potentially favorable conditions; Financial liabilities are contractual obligations to deliver cash or other financial assets to another enterprise and exchange financial instruments with another enterprise under potentially unfavorable conditions. Obviously, these two definitions have broken through the current accounting point of view, that is, assets and liabilities are the result of past transactions.
Secondly, in the above-mentioned confirmation (1) standard, the influence of confirming the project on the future economic interests of the enterprise is no longer emphasized, but the substantial transfer of risks and rewards related to confirming the project is emphasized. Undoubtedly, it is a great breakthrough to take the substantial transfer of risk and reward as the basis of initial accounting recognition (definition). Traditional accounting generally deals with certainty or little uncertainty, but today's accounting environment is full of uncertainty and risk. If uncertain items are only undefined off-balance-sheet items, it will bring great "off-balance-sheet disclosure risk" to report users.
Of course, redefining the elements of accounting statements means a fundamental change in accounting theory and methods, which will be a long and complicated process and will be greatly limited by the principle of "cost-effectiveness". However, we should see that the accounting confirmation and measurement requirements of a large number of off-balance-sheet items will eventually promote the final completion of this process.
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