Consequently, the amounts reported for these balance sheet items often differ from their current economic or market values.
While use of historical cost measurement is criticised for its lack of timely reporting of value changes, it remains in use in most accounting systems during periods of low and high inflation and deflation.
The trend in most accounting standards is towards more timely reflection of the fair or market value of some assets and liabilities, although the historical cost principle remains in use.
Many accounting standards require disclosure of current values for certain assets and liabilities in the footnotes to the financial statements instead of reporting them on the balance sheet.
[7] 'Fair value' is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.
[11] The specific choice of measuring financial capital maintenance in units of constant purchasing power (the CMUCPP model) at all levels of inflation and deflation as contained in the Framework for the Preparation and Presentation of Financial Statements, was approved by the International Accounting Standards Board's predecessor body, the International Accounting Standards Committee Board, in April 1989 for publication in July 1989 and adopted by the IASB in April 2001.
In making that judgement, IAS 8.11 requires management to consider the definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the Framework.
IAS8, 11: "In making the judgement, management shall refer to, and consider the applicability of, the following sources in descending order: (a) the requirements and guidance in Standards and Interpretations dealing with similar and related issues; and
(b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework.
"There is no applicable International Financial Reporting Standard or Interpretation regarding the valuation of constant real value non-monetary items, e.g. issued share capital, retained earnings, capital reserves, all other items in Shareholders Equity, trade debtors, trade creditors, deferred tax assets and liabilities, taxes payable and receivable, all other non-monetary receivables and payables, Profit and Loss account items such as salaries, wages, rents, etc.
Variable real value non-monetary items, e.g. property, plant, equipment, listed and unlisted shares, inventory, etc.
The IASB requires entities to implement IAS 29 which is a Capital Maintenance in Units of Constant Purchasing Power model during hyperinflation.