Market Value vs Historical Cost Valuations of Fixed Assets in the Context of International Convergence

The purpose of this paper is to discuss the differences between accounting for fixed assets under IFRS and U.S. GAAP.  Primarily the discussion will be driven by the question: which standard should the FASB lobby for in its joint effort with the IASB to converge U.S. GAAP with IFRS?  The paper will start by establishing that financial reporting, as it has evolved in the United States, was developed primarily to assist in the accountability relationships between management and both credit and equity investors.  From there the paper will look at which standard is better suited to fulfill this goal and enhance financial reporting.  It will first discuss the differences of historical cost accounting versus market values in the income statement.  Next, the paper will look at the differences created in the balance sheet by the two methods.  Finally, the paper will consider additional implications of switching to a market value standard.  This paper will attempt to prove that historical cost accounting is the more reliable method of the two, provides an equally if not more relevant income measure, and that market values do not enhance the financial statements in any clear way.  Particularly in any fashion that justifies the additional costs to the firm and to investors in debt and equity that market values would create.