Do Historical Cost Financial Statements Comply with the Objectives of SFAC 1?
Bogner, Michelle L.
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The Financial Accounting Standards Board has issued Statements of Financial Accounting Concepts to provide the objectives which financial reporting should comply with. As the economic environment and markets have changed, there has been some controversy over whether historical cost information complies with these objectives. This paper reviews the objectives and comes to the conclusion that historical cost is satisfactory for the present, but a change will probably be needed in the future. Several alternatives are discussed and a gradual change to a valuation basis is recommended. User and preparer opinions are discussed and the recommendations take into account their opposition to change. The main conclusion of the paper is that SFAC 1 basically says that financial reporting should provide users with the information they need and want. Historical cost information seems to be satisfactory now, but a move to supplemental information is also considered positive. Any change occurring in financial reporting will have to be implemented slowly and build on what users already understand.