Home Featured REITs Underestimate Lease Accounting and Revenue Recognition

REITs Underestimate Lease Accounting and Revenue Recognition


Part 2 of 2

According to a recent study titled: The 2017 BDO RiskFactor Report for REITs, 2017 is leaving a string of broken stock market records in its wake, but REITs have seen more modest boosts in performance. In part one of this two-part series, we wrote that the top 100 REITs unanimously cite access to capital, financing and liquidity as a risk to their business, up from 96% in 2016 and 93% in 2014. In part two, we take a closer look at lease accounting and revenue recognition from the report.

According to the report, “internal controls and financial reporting risks and accounting rule changes are cited by 71% of REITs, up from 69% in 2016 and 50% in 2014. The newly finalized Lease Accounting Standard, ASC 842, which will take effect in December 2018, is particularly key for the commercial real estate sector.”

The report says that just 15% of REITs specifically noted lease accounting in their filings, consistent with 2016 levels.

“REITs may think the lease accounting and revenue recognition standards won’t significantly impact them, but they may be surprised,” says Angela Newell, national assurance partner at BDO USA.”

Newell adds that “Applying the new standards can be complicated, and organizations that aren’t making headway on an adoption plan—establishing it and putting resources behind it—risk falling behind.”