Abstract The omnipotence of historical costs in financial accounting is traditional. Traditions tend to be unyielding and revered; they cannot and should not be overturned lightly. Inroads, however, have already become well established. To the extent that accounting for the historical costs of current assets is presumed to embrace the attributes of relevance, objectivity, and inviolability, it is treacherous as well as traditional. If the primary goal of financial accounting is objectivity in the meaningful measurement of income and financial position, historical costs must give way to current market values and replacement costs. In the vast majority of situations such measurements are objectively feasible. Their use could go far in eliminating the manipulative aspects and inconsistencies in financial statements and in restoring their economic relevance. The inadequacy of historical cost information becomes less obvious to the outsider and the discrepancies between accountants' measurements and current exchange prices become less directly observable by the outsider, accountants' defenses seem to stiffen and conservatism and realization and historical costs are embraced as being of paramount importance.
Robert T. Sprouse (Tue,) studied this question.