NAREIT Says Comprehensive Look at Cash Flow Statements Needed

In a comment letter submitted to the Financial Accounting Standards Board (FASB) on April 21, NAREIT called for “a comprehensive evaluation” of the statement of cash flows in companies’ financial statements.

The recommendation came as part of a series of comments from NAREIT on Proposed Accounting Standards Update, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, a consensus of the FASB Emerging Issues Task Force. FASB pursued the development of the proposal because stakeholders have indicated that there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other topics. The proposal addresses eight specific cash flow issues with the goal of reducing the existing diversity in practice. However, NAREIT said it favors a comprehensive analysis of the statement of cash flows, which it views as “a more effective method of solving the problem of diversity in practice rather than seeking incremental changes over time.”

Additionally, NAREIT expressed its objections to proposed guidance regarding the classification of cash flows from distributions received from equity method investees.

“Equity method investments are common transactions in the real estate space, and the proposal recommends guidance that, in our view, would diminish the usefulness of the cash flow information to investors and other financial statement users,” NAREIT said.

Finally, NAREIT recommended that the board offer a “look through” approach for the classification of distributions received from equity method investees.

(Contact: Chris Drula at cdrula@nareit.com)

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