Whatever the disagreement over the precise objectives of financial statements, there probably is general agreement that they are supposed to report the economic events and the economic status of a n enterprise as realistically as possible—they are supposed to “tell it like it was.” The essence of the current debate between the historical-cost advocates and the proponents of replacement cost is, I believe, a disagreement on what actually constitutes economic reality.
A version of this article appeared in the November 1976 issue of Harvard Business Review.