Fair value accounting

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. Like all managers, as Senior Director of Finance and Operations of a 1.5 billion dollar multinational computer business, my job was to make and to implement decisions. That is what managers do. Managers often make important decisions based on how they project their decisions will affect financial reporting results. ¹ In some circumstances, fair value accounting provides the best decision support while in other circumstances historical cost accounting provides the best decision support. In my experience, ideal circumstances where the manager faces straightforward decisions are rare. As a financial executive, I made decisions in the mist of ambiguity that often did not lend themselves to textbook solutions. Therefore, the goal of this chapter is to provide 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.