Assurance Expert Outlines Impact of FASB Definition of Business Standard on REITs

Jennifer Hillenmeyer, a partner in national assurance at EY, joined REIT.com for a video interview at REITWise 2017: NAREIT’s Law, Accounting & Finance Conference in La Quinta, California.

Prior to her current position at EY, Hillenmeyer completed a two-year fellowship at the Financial Accounting Standards Board (FASB). While there, she worked on two standards of particular significance to REITs.

Hillenmeyer discussed the two standards, which cover the definition of a business and the derecognition of non-financial assets, in depth. She noted they will have a “significant impact” on REITs.

Regarding the definition of a business standard, it creates a threshold stating that if substantially all of the value of an acquisition is concentrated in a single asset or group of similar assets, then the transaction is not considered to be a business.

“When applying the threshold, FASB was really thinking a lot about real estate transactions,” Hillenmeyer said. She noted that exceptions exist whereby the purchase of a single building can be combined with the land and an in-place lease to create a single asset, and it won’t be considered a business. Today, if there is an in-place lease, almost all real estate transactions are considered a business, she explained.