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company’s transaction-based reports, although it would most
likely be an important factor in valuing the company.
3. SFACs
From the late 1970s through the mid-1980s, the FASB issued a
series of statements known as “Statements of Financial Accounting
Concepts” (SFACs) in an effort to define a conceptual framework
within which accounting standards could be developed. These
statements did not discuss mark-to-market accounting explicitly.
However, SFAC No. 5, issued in December 1984, allowed for the
possibility that assets and liabilities could in certain cases be
revalued on the basis of current market value in the absence of a
new transaction. These cases could occur if the current price
information was “sufficiently relevant and reliable to justify
the costs involved”.
Though the transaction-based approach remained dominant, the
SFAC No. 5 criterion for using current market value allowed a
wide range of practice. The FASB listed three examples of
valuation at current market value from then-current practice:
(1) Some investments in marketable securities, (2) assets
expected to be sold at prices less than previous carrying
amounts, and (3) some liabilities that involved marketable
commodities or securities, such as obligations of writers of
options. These examples were limited to circumstances where
either (1) shareholders had suffered a decline in value from the
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