What is a limitation of the Historical Cost approach regarding changes in economic conditions?

The Historical Cost approach records assets and liabilities at their original purchase prices, without adjusting for changes in economic conditions such as inflation or market value fluctuations. This method can lead to misleading asset valuations because it does not reflect the current value of an asset in the event of changes in the economic environment. For instance, if the value of a property appreciates over time, its historical cost will not indicate this increase, potentially resulting in financial statements that do not accurately represent the organization's current financial position. This discrepancy can mislead stakeholders regarding the true worth of the company's resources.

In contrast, the other options do not accurately reflect the limitations of the Historical Cost approach. The method does not automatically adjust for economic changes, nor does it positively reflect current market trends. Additionally, while it adheres to certain accounting standards, it does not fully comply with the requirement to present fair value in all circumstances, as required by International Financial Reporting Standards in specific situations.