Unclear AssumptionsSo why is WCI following a different path and not recording many impairment charges for its land? Jim Dietz, WCI's chief financial officer, says the accounting rules differ for valuing finished goods vs. those still under production. While finished goods require using present values of future cash flows, raw land can be valued using a company's internal model, rather than market prices, he says. Under FAS Rule 144, long-lived assets like inventory are required to be tested for impairment each quarter. The test is to look at the future undiscounted cash flows from an investment to see if they cover the costs of the investment. If the expected future cash flows do not cover the cost, then the inventory is written down based on a discounted cash flow valuation. In the case of WCI, gross margins have fallen for many land investments and communities under development, and the builder expects it to take longer to develop the sites. But the company still believes the projects will eventually cover the costs as stated on the balance sheet, Dietz says. Under such assumptions, "the total cash flow before discounting may not change very much," Dietz says. Thus there's no need for an impairment charge. Of course, investors don't know the exact assumptions WCI is using in its models, since the company is not sharing that information.