ABSTRACT
This chapter provides a former executive's insights into key issues surrounding the use of historical cost accounting versus the use of fair value accounting. It also provides insights about the pros and cons of the two different accounting treatments within a variety of settings so that individual decision-makers can make the best accounting choices for their business. Since the chapter presents the manger's perspective as a decision-maker, it focuses on issues related to both external and internal reporting. Managers believe that both investors and lenders want to see smooth predictable earnings growth. Managers strive to meet the market's expectations by minimizing earnings volatility. They also want reporting systems that are reflective of their efforts. Fair value accounting can reduce firm risk and volatility if managers align their hedge strategies with fair value accounting rules. The use of fair value accounting makes the practice of timing liquid asset sales to meet reporting objectives unworkable.
