Asset revaluation and cost basis: Capital revaluation in corporate financial reports

              The Accounting Historians Journal Vol. 10, No. 1 Spring 1983
Shizuki Saito UNIVERSITY OF TOKYO
ASSET REVALUATION AND COST BASIS: CAPITAL REVALUATION IN CORPORATE FINANCIAL REPORTS
Abstract: The paper is a historical study of the asset revaluation movement and the subsequent establishment of the cost basis in the United States. A survey of the corporate report leads to a generalization that the asset revaluations were fun-damentally the adjustments of equity capital triggered by corporate financial poli-cies. The concept of quasi-reorganization then was developed to ensure that the capital revaluation was undertaken for the right reasons. This newly developed concept made the revaluation of equity and assets less useful from the standpoint of corporate financial management. Asset revaluation was thus replaced by the cost principle.
Introduction
The historical development of accounting principles needs to be studied on the basis of the interrelationship among the following three basic factors:
1. Accounting practices of individual corporations
2. Accounting regulations that constrain those practices
3. Environmental conditions, i.e., general economic and social circumstances and business conditions.
The traditional approach of accounting historians seems to have been like Figure 1. That is, corporate accounting practices obey, or are forced to obey, accounting regulations (arrow a), which may change in response to changing environmental conditions (arrow b). Accounting practices, however, do not always obey the regulations. In fact, they frequently disobey regulations, and such repeated in-fractions may lead to changes in the regulations. In addition, busi-ness and other environmental conditions often have direct and vital effects on corporate accounting practices.
The author is indebted to Professors Alfred D. Chandler, Jr. and William W. Cooper for their valuable suggestions. He has also benefited greatly from com-ments and suggestions by Professors Robert N. Anthony, Paul Frishkoff, Yuji Ijiri, Thomas K. McCraw, Gary J. Previts, Arthur L. Thomas and Stephen A. Zeff. Finan-cial support by the American Council of Learned Societies is gratefully acknowl-edged.