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Eduard Braun’s paper entitled “The Ecological Rationality of Historical Costs and Conservatism” has many elements which recommend it. Professor Braun has done an excellent job of summarizing several key topics in accounting theory, in particular those related to the issue of the revenue-expense versus the asset-liability approach to income determination and the historical cost versus fair value debate. In his paper, Braun argues that the revenue-expense approach to accounting cannot be traced to a distinct event. He also maintains that the revenue-expense approach is ecologically rational; that is, it results from “social evolution”, not human design. He goes on to argue that this ecological rationality is the reason why the efforts to impose the asset-liability approach favored by accounting standard-setters has encountered difficulties. He further argues that a solid basis for explaining the ecological rationality of the revenue-expense approach can be found in behavioral economics especially in Prospect Theory. He concludes that the revenue-expense approach is ecological rational and that it provides a basis for the organization of a market economy. The author supports his arguments with citations to well-respected accounting research which provides arguments against abandoning the revenue-expense approach ( Waymire &amp; Basu, 2007 , Accounting is an evolved economic institution.  Foundations and Trends in Accounting, 2 (1–2), 1–173;  Dickhaut, Basu, McCabe, &amp; Waymire, 2009 , Neuroaccounting II: Consilience between accounting principles and the primate brain. Retrieved January 30, 2009 from  http://ssrn.com/abstract=1336517  or  http://dx.doi.org/10.2139/ssrn.1336517;  Dickhaut, 2009 , The brain as the original accounting institution.  The Accounting Review, 84 (6), 1703–1712). This commentary will focus on two themes in Braun’s paper. First, the question of ecological rationality and whether this concept implies evolutionary progress. Second, the historical evolution of the revenue-expense approach, and why this approach can traced to several distinct events.

Commentary on Braun’s “The Ecological Rationality of Historical Costs and Conservatism”