Refer to Theory in Practice vignette 7.4, describing how The Blackstone Group proposed to account for the carried interest to be received from future earnings of unconsolidated firms it has invested in.

a. As a rational investor in the shares of Blackstone’s initial public offering, would you find fair value accounting more or less decision useful than historical cost accounting for the value of Blackstone’s carried interest? In your answer, consider issues of relevance, reliability, and full disclosure.
b. As an investor, would the increased volatility of Blackstone’s earnings resulting from fair value accounting affect the amount you would be willing to pay for its shares? Explain your answer.
c. Why do you think that Blackstone changed its mind?

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