We develop a model where firms choose whether to comply with an accounting rule that places an upper bound, such as historical cost, on the report and mandates recognition of bad news. Firms may also make unregulated assertions that their value exceeds the upper bound permitted by the accounting rule. In this context, improved enforcement of accounting rules enhances the credibility of firms' unregulated claims. Firms' willingness to recognize large impairments depends mostly on misreporting costs, while their willingness to recognize small impairments depends mostly on investors' prior beliefs and whether a small impairment would be interpreted favorably. Consistent with our model, we find preliminary empirical evidence that investors respond favorably to small impairments by firms with low market values relative to book value.