Based on extant literature, we review the positive theory of GAAP. The theory predicts that GAAP's principal focus is on control (performance measurement and stewardship) and that verifiability and conservatism are critical features of a GAAP shaped by market forces. We recognize the advantage...

For the past two decades, fair-value accounting — the practice of measuring assets and liabilities at estimates of their current values — has been on the ascent. This marks a major departure from the centuries-old tradition of keeping books at historical cost. It also has implications across...