Special Issue: Fair Value in Financial Reporting, Auditing, And Tax Accounting (From the Editors‪)‬

During most of the last century, standard setters emphasized historical cost accounting. Under this traditional accounting model, the income statement, which results from matching an entity's revenues with expenses during a period of time, was considered the primary financial statement conveying useful information about a company's performance and value to shareholders. The balance sheet was considered a by-product of the matching process, since it contained such categories as prepaid expenses, unearned revenues, accrued expenses, and accrued revenues. Financial statements prepared under the historical cost convention were and are still perceived by many today to be reliable, relatively easy to verify, and straightforward to understand. Historical cost accounting was sufficient as long as a company's assets consisted mostly of identifiable tangible assets. With the increased prominence of intangible assets, such as intellectual capital, human resources, brand names, technology advances, or corporate culture, this accounting model resulted in under-valuing and under-recording assets that contributed significantly to the achievement of a company's strategic goals and objectives. For example, intangible assets that are recorded in the balance sheet--purchased copyrights, patents, and other legal rights--are recorded at historical cost. Other intangible assets, such as brand assets, assets arising from marketing and supplier relationships, and knowledge assets developed from research and development are not recorded at all. Consequently, great disparities between companies' book and market values have been observed, and the users of financial statements have pressed for more relevant fair-value information.