The History of Mark-To-Market Accounting (cont.)

In the aftermath of the Great Depression, there was a general move toward more “conservative” accounting. This included a move away from the use of “current values” or “appraised values” for long-lived assets such as fixed assets and intangibles.

This move away from “current value” accounting and towards the use of historic cost accounting for long-lived assets was strongly supported by Robert E. Healy, the first Chief Accountant of the SEC. Healy had participated in the Federal Trade Commission (“FTC”) investigation of business practices that preceded the formation of the SEC. This investigation uncovered widespread use of asset writeups which the FTC viewed as arbitrary. Commenting on the findings of this investigation, Healy is quoted as observing that “you can capitalize in some states practically everything except the furnace ashes in the basement.”

During Healy’s tenure, the newly-formed SEC strongly endorsed historic cost accounting for long-lived assets and moved to curtail the use of “appraised values” through the registration process. By 1940, the practice of the upward revaluation of fixed assets – a practice that had been commonplace in the late 1920s – was virtually extinct from financial reporting in the U.S.