Application of the principle of conservatism against the application of the fair value concept: An example of the Serbian capital market

Abstract

The characteristic of striving towards the application of the new valuation concept, as opposed to the application of traditional accounting principles, modern financial reporting prompted the authors of this paper to address the importance of the application of traditional accounting principles, especially the principle of prudence (conservatism), and the concept of fair value for the accounting information relevance. The most important business decisions in the entity are made on the basis of information produced by the accounting information system, based on which we see how important it is for this information to be up to date. The relevance of the information of the accounting system of first-class importance is the basis of evaluation, which is the subject of research in this paper. More precisely, the paper examines the methods of measurement after initial recognition of fixed assets on the example of a group of business entities operating on the Serbian capital market. The results of empirical research are of a twofold nature. Namely, for measurement after initial recognition of intangible assets, plant and equipment, as well as other property, plant and equipment, the concept of historical cost and the traditional accounting principles immanent to it are primarily used. For measurement after initial recognition of buildings, land, investment property and biological assets, the concept of fair value is more often used. In other words, using a practical example, we have shown that the combined basis of financial reporting is the dominant feature of modern financial reporting of entities operating in the Serbian capital market.