Continuously Contemporary Accounting
Introduction
Over the past years there have been many accounting measurement systems developed to replace or serve as a supplement to historical cost accounting. However it is not possible, at present, to state which system, if any, is likely to replace the historical cost system. Perhaps the most notable system is Continuously Contemporary Accounting (CoCoA), proposed by Australian researcher, Raymond Chambers. Chambers quoted “…that thousands of shareholders had lost millions of dollars on security investments made on the basis on out-of-date information or on fiction which were reported as facts” (Deegan, 2000, p.112).
In light of his comments Chambers believed that his system will provide relevant, accurate and up to date information to make informed and better decisions. This is because CoCoA is based on current selling price which is seen as the correct valuation of financial reports at a point in time, whilst past prices are a matter of history so are not relevant to current action.
The scope of this topic is endless, so this essay will concentrate on the fundamentals of Historical Cost Accounting, Continuously Contemporary Accounting and its strength and weaknesses.
Historical Cost Accounting
Historical costing has been widely used and accepted in publishing financial statements all around the world. But due to inflation, fluctuation in exchange rates and specific price level changes such as shifts in consumer preference and technological advances, has led to a search to either replace historical costing or serve as a supplement to it. Wolk, Tearney and Dodd (2001) state in a period of rising prices, attributes measured by historical costing methods generally have little relevance to economic reality. This is because historical cost accounting assumes money holds a constant purchasing power. Therefore this assumption is inaccurate because an asset’s current value may be different from its historical cost. Critics also argue “during periods of
Over the past years there have been many accounting measurement systems developed to replace or serve as a supplement to historical cost accounting. However it is not possible, at present, to state which system, if any, is likely to replace the historical cost system. Perhaps the most notable system is Continuously Contemporary Accounting (CoCoA), proposed by Australian researcher, Raymond Chambers. Chambers quoted “…that thousands of shareholders had lost millions of dollars on security investments made on the basis on out-of-date information or on fiction which were reported as facts” (Deegan, 2000, p.112).
In light of his comments Chambers believed that his system will provide relevant, accurate and up to date information to make informed and better decisions. This is because CoCoA is based on current selling price which is seen as the correct valuation of financial reports at a point in time, whilst past prices are a matter of history so are not relevant to current action.
The scope of this topic is endless, so this essay will concentrate on the fundamentals of Historical Cost Accounting, Continuously Contemporary Accounting and its strength and weaknesses.
Historical Cost Accounting
Historical costing has been widely used and accepted in publishing financial statements all around the world. But due to inflation, fluctuation in exchange rates and specific price level changes such as shifts in consumer preference and technological advances, has led to a search to either replace historical costing or serve as a supplement to it. Wolk, Tearney and Dodd (2001) state in a period of rising prices, attributes measured by historical costing methods generally have little relevance to economic reality. This is because historical cost accounting assumes money holds a constant purchasing power. Therefore this assumption is inaccurate because an asset’s current value may be different from its historical cost. Critics also argue “during periods of
Bibliography: Brown, R. (1998). Financial Accounting Theory. Longman: Australia. Deegan, C. (2000). Australian Financial Accounting. McGraw-Hill: Australia Henderson, S., Graham., & Harris, K. (2004). Financial Accounting Theory. Prentice Hall: Australia. Laing, G. (2000). Chambers Continuously Contemporary Accounting. Journal of Accounting. Retrieved August 24, 2004, from www.tasa.org.au Martin, C. (1995). An Introduction to Accounting. McGraw-Hill: Australia. Wolk, H., Tearney, M., & Dodd, J. (2001). Accounting Theory. Thomson Learning: U.S.A.