Accounting Expert Outlines Impact of FASB Hedge Accounting Proposals on REITs

Robert Barton, vice president of accounting advisory at Chatham Financial, joined REIT.com for a video interview at NAREIT’s headquarters in Washington, D.C.

Barton recently participated on a panel at REITWise 2017: NAREIT’s Law, Accounting & Finance Conference in La Quinta, California.

Barton commented on recent Financial Accounting Standards Board (FASB) developments, including proposed changes to the hedge accounting standard.

For REITs, the biggest change from the proposal would be that the measure of ineffectiveness is going away, according to Barton.

“This has been a significant burden on a lot of REITs, so this simplification of this standard will really benefit most REITs,” Barton said, as they will not have to separately record and state ineffectiveness in their earnings.

Barton pointed out that the actual test of effectiveness will now simply be applied only at inception for perfectly effective swaps.

Barton observed that the FASB hedge accounting standard proposal will not result in changes to hedge documentation, the assessment of effectiveness, regression testing or many of the other main building blocks of the hedge accounting standard.

Meanwhile, Barton said that based on conversations with FASB staff, January 2018 is looking likely to be the early adoption date for the standard. In considering whether REITs should consider early adoption, REITs should consider how “painful” ineffectiveness has been to their profit and loss account in the past, he noted.