Abstract

"The Evolution of the Fair Value Versus Historical Cost Debate and Its Modern-Day Advocates"

Jacqueline Wukich, Case Western Reserve University (jjw115@case.edu)

Accounting standard setters’ focus has officially shifted from the primacy of the income statement to the primacy of the balance sheet with the current Conceptual Frameworks of both the FASB and IASB. This shift (along with other factors such as the financial crisis of 2008) revived the historical cost v. fair value debate with an intensity that leaves opponents at further ends of the continuum than historical opponents of the debate. This paper explores the state of the current debate, presenting fair value advocate, Mary Barth, and historical cost advocate Stephen Penman as its modern-day spokespersons. The modern debate has been informed and influenced by the accounting thought-leaders that championed this debate in the 1920’s-70’s and, as such, this paper also examines the evolution of the fair value v. historical cost debate. This paper also challenges the orientation postulate of both ends of the spectrum because both seem to overlook the importance of the statement of cash flows for investors.