This article presents evidence suggesting that Swedish municipalities use discretion associated with the accounting for depreciation and asset write-offs to manage externally reported financial performance. The general hypothesis that is proposed and tested is that they use this discretion for purposes of reporting small surpluses across accounting periods (i.e., smoothing). The article identifies two strategies for achieving this reporting objective, including the use of the discretion to (1) systematically increase expenses during reporting years when these can be absorbed by surpluses; and (2) to systematically increase them during periods when large deficits are reported. The latter strategy is referred to as the ‘big-bath strategy’ and involves systematic ‘dumping’ of expenses on already poor results. Both strategies support the above reporting objective, by setting the stage for the reporting entity to more effectively reach the reporting objective in future accounting periods. Given the findings that are presented, it is recommended that accounting standard setters ought to consider a review of standards guiding the level of discretion and accompanying disclosure requirements.