give reasons such as objectivity, changes in market prices, and the subjectivity of the fair market value as the reason behind the acceptance of historical cost.

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Advanced Accounting

Advanced Accounting

Summary of the Article

In the article the big question of capital measurement, Hoogervorst (3) reviews some of the concepts that relate to the measurement of investments both in the short run and in the long run. In so doing, He presents two concepts the historical costs and the current value noting each of these is often viewed differently arousing both controversy and preferences on their applicability. The discussion gives reasons such as objectivity, changes in market prices, and the subjectivity of the fair market value as the reason behind the acceptance of historical cost. While on the contrary, it notes that the fans of the fair value prefer it since it focuses on correctness and up to date reporting. Although the writer does not give a specific recommendation on the most appropriate method, I do agree with the comments IASB also has preferred to combine the two due to the nature of the business activities the market factors and the type of transactions.

I also agree with the second category of tactics applied in measurement and the understanding of the profit and loss and the other comprehensive incomes. Each of these has been presented based on the needs of the stakeholders such as the investors, financial analysts, scholars and the management. The writer admits despite the challenges of choosing whether to rely on profit and loss, there is an increased concern especially on other comprehensive incomes, which are applied in instances of counter intuitive outcomes and which can well be explained through fair value of own credit, and cash flow hedging.

Connecting the Ideas to Theories

            According to Dumay (5), several theories may be connected to this article to better reveal some of the issues that have been presented. Signaling theory may be inferred to explain why it is important for firms to establish ways in which they need to better measure their performance using the best practices to lead to a better understanding of their own systems. Despite the fact that markets have regulations, a firm may develop its own practices to ascertain whether it is performing to the set expectations just as Warren Buffet has been noted to have done with Berkshire Hathaway. Public interest theory can also be applied to lead to a better understanding of how regulators often decide on the best practice to apply in incidence such as the explanation of the right measurement method between the historical and the fair market value. A combination of these focuses on addressing the public concerns in terms of finding a balance on what each method can do and finding a way to cut through the concepts (Deegan 5).

Closely related to the public interest theory is the capture theory, which focuses on the ideologies of the target groups or which may be explained as the stakeholders in this case. Every stakeholder often has specific issues that they would like to be addressed and the broad mandate presented by the different methods allows one to choose one that best suits their interests (Deegan 6). For example, the existence of methods such as the profit, loss and other comprehensive incomes are just some of the practices, which focus on the needs of the interest groups yet connecting to the interests of other groups that exist. It can also be used to explain why accounting bodies infer to the different accounting measurement methods between fair value and the historical cost. The Bushfire theory may also be explained to exist as a necessity to find ways in which the available methods may best be applied to give the best results rather than just opting one method, which may lead to a financial crisis. This is why accounting bodies often seek ways to tame the impact that one method may have by applying another just as Hoogervorst (4) comments.

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