Historical Cost and Conservatism are Joint Adaptations that Help Identify Opportunity Cost

Braun (this issue) argues that the traditional accounting principles underlying the revenue-expense approach such as Historical Cost and Conservatism are ecologically rational in that they help organizations survive better in uncertain economic environments. More importantly, he argues that the revenue-expense approach generates new private information, which informs markets and makes them more effective (Hayek, 1945), as opposed to merely reflecting back market data under the asset-liability approach (e.g. Sunder, 2011). We try to explicate the nature of the new private information generated jointly by Historical Cost and Conservatism, and how this information facilitates the survival of individual entrepreneurs and organizations in market competition