Final answer:
The FASB actually believes that fair value provides more relevant information than historical cost for financial instruments, marking the statement as False. Historical cost is verifiable but may become less relevant over time, while fair value reflects the current market value and can provide more timely information.
"The correct option is approximately option B"
Step-by-step explanation:
The statement that 'The FASB believes that historical cost for financial instruments provides more relevant and understandable information than fair value' is False. The Financial Accounting Standards Board (FASB) maintains that fair value accounting, which reflects the current market value of assets and liabilities, often provides more relevant information for making economic decisions. The FASB's view is that fair value accounting, as outlined in the Accounting Standards Codification (ASC) Topic 820, can provide more timely and meaningful information to users of financial statements than historical cost accounting, particularly for financial instruments.
Historical cost accounting records assets and liabilities at their value at the time of acquisition. This cost remains constant over time on the balance sheet. While historical costs are objective and verifiable, they may become less relevant as time passes, especially in the context of rapidly changing financial markets. In contrast, fair value is a market-based measurement and reflects the conditions that exist on the measurement date, considering the risk of holding an asset or liability over a period of time.
However, it is important to note that not all stakeholders entirely agree with the use of fair value. Some argue that it can lead to increased volatility in financial statements. But the FASB's position has been that the benefits of providing a more accurate picture of a company's financial condition outweigh these concerns. It's also worth mentioning that fair value measurements can pose challenges in situations where markets are inactive or when valuing complex financial instruments that may not have observable market prices.