According to generally accepted accounting principles, many of the assets on the bal¬ ance sheet are valued at historical cost: the cost incurred when the assets were originally purchased.

a. How useful are historical costs to equity and debt investors in their efforts to assess the solvency position and long-run earning power of a company?

b. How useful are historical costs in providing numbers that can be objectively verified and therefore used in the legal contracts that exist between capital providers and managers?

c. How might the fact that auditors and managers face high levels of legal liability lead to financial statements that rely heavily on historical costs?