I like what the Chief Accountant of Xerox is reported to have said
at the recent SEC round table on fair value reporting - but probably not in the way he would like me to. In essence, he says that fair valuing financial assets/liabilities is ok, whereas for operational items of non-financial firms it is not as it introduces volatility beyond the firm's control - they are used to mixed attribute accounting. And "managers will have to train themselves to think like market participants rather than operations experts".
There is a lot to discuss there - but I'll try and make it short. Even operations experts should eventually think like market participants because economically, they need to take into account opportunity costs of their operational decisions, not least because their successor (average tenure, anyone?) or their boss might think like market participants ... Externally induced volatility is not a problem if it is real (and not an accounting artefact introduced by mixed attribute accounting), because it can be filtered, and users build confidence when they see it. Operational performance still remains visible. They like mixed attribute accounts? How dare they perform even the most basic arithmetic operations on numbers that do not have the same measurement attribute? Because it has been done for a long time and they are used to doing it does not make it any more sensible. So yes, I am in favour of full fair value, because financial reporting is made for users, not for managers. But I agree, there are some transition issues.