The relevance of fair value and necessity of faithful representation are the main factors used in determining which measurement principle to apply. Relevance refers the impact capacity of financial information generated by an accounting system on the decisions of information users. Therefore, relevance also contains materiality concept which is the universally accepted accounting principle that all material matters are to be disclosed.

The fair value principle, on the other hand,  states that assets and liabilities are reported at their fair value. The historical cost principle states that assets are recorded at their cost.