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Fair Value Reporting for REITs Possible, but not Inevitable

04/19/2013 | By Carisa Chappell

Chris Dubrowski, partner with Deloitte LLP, joined REIT.com for a video interview at REITWise 2013: NAREIT’s Law, Accounting and Finance Conference in La Quinta, CA.

Dubrowski discussed several financial reporting issues, including the status and benefits of the converged accounting model for reporting discontinued operations that NAREIT advocated. 

“Discontinued operations has been sort of a silly rule we've had to deal with over the last few years. It really wasn't intended for REITs that sell properties to show them as discontinued operations,” he said. “But we're optimistic that the converged standard will happen and might happen as soon as this year.”

Additionally, Dubrowski spoke about the issues of reporting investment property in fair value, a topic that that the Financial Accounting Standards Board (FASB) has had on its agenda off and on over the past decade. Although not inevitable, REITs may be required at some point to report investment property in fair value, according to Dubrowski.

“Internationally, the large real estate companies do report at fair value; that’s an area where we are different than our global competitors. So, I think the trend will be that way, but it's not inevitable,” he said.

In terms of transparency, Dubrowski said for some REITs fair value reporting may accurately predict and show what they do. However, he said others create value by operating their properties, which means the fair values of their properties are less relevant.

Dubrowski also discussed REITs' increasingly complex financial statements. Dubrowski said he worries that financial statements are very difficult to understand. 

"I can't even understand them sometimes, and that's my job. I read these things and don't even know what they're talking about," he said. "I think ultimately we're going to have to come up with some different kind of financial reporting. After all, the one that we’re using was developed in the 1930s for steel mills and automobile manufacturers and not for Google, Facebook and modern real estate companies.”

He suggests that a model for a type of real-time, online financial reporting system will need to be developed to take the place of quarterly reports and annual audits.
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