Subject: Fair value accounting 4-573

November 1, 2008

Accounting abuses seem to occur more frequently when the accounting profession as a whole, both accountants in industry and in public practice, have the ability to apply “judgment” in preparing financial statements.

“Judgment” is a major aspect of fair value accounting. When accountants can ignore the facts and develop numbers through valuation techniques, discounted cash flow models, etc. financial statements lose their meaning. Virtually no one that reads them can tell what they really mean.

The only items in a company’s balance sheet that should be accounted for at fair value are those assets and liabilities that have a readily determinable value as the result of being traded in an active market. There should be no exceptions to this rule. Assets held for long-term investment purposes by a company should NOT be accounted for at fair value, even if the asset is traded in an actively traded market, because short term market swings can distort the value of such assets. Such assets should be recorded at cost and tested for permanent impairment.

I sincerely hope that the SEC takes a much more aggressive approach in the area of accounting. The Certified Public Accountant profession has done an extremely poor job in developing financial statements and metrics that the average person can understand. While some concepts developed by CPA’s on governing boards are sound in theory, in practice they are too esoteric for the average business person and investor to understand. Historical cost accounting has served the country well for decades and that should be the primary basis for balance sheet presentation.


Gregory H. Smith, CPA (licensed in Georgia and South Carolina)
Senior Vice President – Chief Financial Officer
Domino Foods, Inc.
American Sugar Holdings, Inc.