Real Estate Accounting: New Regulations Essay

1606 words - 6 pages

The level of agony for individuals and businesses continues to rise as they experience losses in the value of their real estate holdings. In some circumstances, the fair market value of their property has fallen below the loan or mortgage amount. As a result, many debtors decide to walk away from the loan, resulting in repossession of the property by the lender. As shown in Appendix A the default rates continue to rise (United States), affecting accounting issues such as, revenue recognition, measurement, fair value, and impairment.
The reporting of long-term debt is one of the most controversial areas in financial reporting” (Kieso, 709). This is because long-term debt such as, loans for real estate investments, has a significant impact on a company’s cash flows. A company’s cash flows are affected by long-term debt as gains and losses are reported through an equity account, such as “Other Comprehensive Income” (Investments). Cash flows are also impacted by reporting the permanent impairment of an asset as a realized loss through earnings and regulatory capital.
Individuals and institutions involved in the current credit crisis include: the United States Congress, the Federal Reserve Board, Fannie Mae, Freddie Mac, the Department of Housing and Urban Development (HUD), the Securities and Exchange Commission (SEC), credit agencies, banks, mortgage brokers and consumers (Carey, 2). The Financial Accounting Standards Board (FASB) is focusing on the uprising problems in dealing with the reporting of real estate holdings.
Within the housing market, a home buyer (debtor) must go first to a financial institution or mortgage broker (originator) who will approve and make mortgage loans. Next, the originator may choose to sell the loan to a protected government sponsored enterprises, such as Fannie Mae or Freddie Mac, or a private securitization trust. Thirdly, the entity protecting the loan takes “the responsibility of transforming the individual mortgages into asset-or mortgage-backed securities” (Carey, 92). The securities are also known as “tranches” which are “groups of securities with specific risk and return characteristics” (Carey, 92). Lessees held by the debtor have to recognize their lease payments as an expense. In the future, the lessee may be required to recognize their entire lease debt as a liability under certain circumstances. This will make the lessee incapable to renew their lease or stop their lease commitment early. This provision could lead to increased defaults within the real estate sector.
Finally, the “securitizer” sells the tranches to investors who become the “ultimate lenders” in hedge funds, pension funds, or financial institutions (Carey, 92-93). The different loans held by the lender “should be classified as notes receivable from participants in the financial statements of a defined contribution plan, measured at the outstanding principal amount plus accrued but unpaid interest” (FASB).

Find Another Essay On Real Estate Accounting: New Regulations

School of Management Essay

893 words - 4 pages personal qualities that lend themselves to a career in real estate -- and more recently by a strong desire to be an effective and creative leader. In considering the MS in Real Estate Development, I desired a program that would not only compliment my academic background, but lend substance to my professional work experience. In 1993, I graduated from Shenandoah University with a Bachelor of Business Administration in Accounting. Upon graduating

Real Estate and Technology Essay

1172 words - 5 pages Real Estate and TechnologyTimothy Thacker (4366173)American Military University13 October 2013BUSN121: Real Estate PracticeProfessor Patricia WatsonExecutive SummaryTechnology use throughout America is at an all-time high. Seemingly every adult, teenager, and a large number of children have a smart phone, tablet, or iPod. The increased usage of these types of technology have created new businesses and revolutionized many others. Real Estate is

Real Estate Portfolio Valuation: Annotated Bibliography

2004 words - 8 pages The Authors studied why valuation estimates are likely to be biased estimates of market values due to clients' influence. The studies were done on the behaviors of clients in the UK, USA, and New Zealand. The authors pointed out that the information found has made a significant contribution to real estate literature, but the purpose of this research was to examine the prevalence of client influence and the impact on valuation in Nigeria. The


2273 words - 9 pages reported value of real estate, or the question of how to record pension assets and liabilities. Such large-scale financial scandals as the savings and loan failures of the late 1980s (see SAVINGS INDUSTRY) have created some public mistrust of auditing practices and accounting principles, and have brought down on the profession--especially on the Big Six firms--a number of liability suits. The auditing industry is largely responsible for

Fair Value Accounting and Financial Crisis

1033 words - 4 pages and Poor Lending Standards and Deteriorating Regulations - Along with the real-estate bubble, there were also substantial growth in MBS from 2002 to 2007, together with its subsequent collapse, justified referring to it as a “bubble” (Sorrnette and Woodard 2010). When the deflation of the real-estate bubble started, the rate of defaults increased and the holders of MBS suffered from huge losses. Thus, many financial institutions found themselves

Credit Crunch

1561 words - 6 pages attributable to the bank’s acceptance of massive exposure to risk on the sub-prime mortgages. The collapse of the housing bubble, which peaked in the US in mid-2006, caused the values of securities tied to real estate pricing to plummet, making refinancing more difficult. Default rates on sub-prime and adjustable rate mortgages (ARM) began to increase quickly thereafter. The US Federal Deposit Insurance Corporation (FDIC) have defined

Solving the Foreclosure Crisis

1877 words - 8 pages market. So, eliminating of Fair Value Accounting is not a way to solve the problems. Also, the government should focus on stabilized the financial markets, promoting liquidity, solve the problem of imbalances between supply and demand in the real estate market and change the regulation to avoid a similar situation in the future. Therefore, if Fair Value Accounting is eliminated, manager will continue to operate on the short-term performance basis


2477 words - 10 pages land to be used in carrying on its operations, the purchase should be recorded at $50,000. It makes no difference if the buyer and several competent outside appraisers think the land "worth" at least $60,000. Its cost $50,000 should appear on the balance sheet at that amount. Furthermore, if five years later, due to the booming real estate prices, the land's market value has doubled, this makes no difference either. The land cost $50,000 and

Ethical And Legal Obligations In Accounting

2104 words - 8 pages accounting principles as issued by the Federal Accounting Standards Board (FASB). The provider will also ensure that the company, if publicly traded, complies with requirements of the Securities and Exchange Commission (SEC) and the regulations of the Public Company Accounting Oversight Board (PCOAB). This paper briefly explains the principles of financial accounting and how the deviation from ethical and legal obligations led to greater government

Real Estate

813 words - 4 pages It should be noted that all real estate agents and brokers operate under a strict procedural and ethical code monitored by the real estate commission. many of the rules and regulations come from the U.S. senate, and the state of Idaho, and must be strictly adhered to. Agents who fail to follow these regulations shall be, and frequently are, fined or have their license revoked As it turns out, having chosen to job shadow my grandfather and to

Accounting in Relation to Management Function

859 words - 4 pages , 2005) LIMITATIONS OF MANAGEMENT ACCOUNTING Management accounting, comparatively is a new discipline, hence, there are some limitations for the same, which limit its effectiveness. These limitations are as follows: Limitations of basic records: Management accounting derives its information from financial accounting, cost accounting and other records. The strength and weakness of the management accounting, therefore, depends upon the strength and

Similar Essays

"The Principle Of Historical Cost Is Still Used In Accounting When There Is A Large Measure Of Agreement That It Is Inappropriate." Discuss.

1225 words - 5 pages in fair value are recorded in earnings, whether realized or not. However, the many potential gains of Fair Value Accounting should be noted, especially in industries such as Real Estate where non-current assets can produce revenue.Historical cost accounting is not the most effective valuation method possibly for businesses, and theoretically Fair Vale Accounting would improve company transparency, flexibility and efficiency. However, the various

What Effects Are The New Accounting Standards To Be Introduced Going To Have On Business's Within The Uk And Us?

1686 words - 7 pages European tax regulations offer opportunities to reduce taxable income compared to the provisions of commercial law. However these tax benefits may only be enjoyed if the same accounting treatment is followed in the published accounts (Elliot, 2002).It is widely believed that to compete with the capital markets of the U.S. and U.K., Europe has to establish an integrated Pan-European financial and capital marketplace. In doing so it must first make

Wois Descriptions Essay

614 words - 2 pages WOIS DESCRIPTIONS I picked out three job titles that best suited my personality (ESTJ). These are Buyer and Purchasing Agent, Accountant, and Real Estate Agent. Reading through these I noticed how well these jobs would fit my personality and would be a job that I would enjoy doing. What is interesting is that before taking this assessment I was looking into being a buyer and ended up changing my mind and directing my focus into accounting. So it

Real Estate Essay

2347 words - 9 pages . Although they have always operated on a contractual basis with agents, stakeholding and entrepreneurship have new meaning in the 1990s (Davies, 1995, p. 54). In addition, cultural demographics are changing quickly. This means changes in organizational structures within real estate offices. This paper will address these changes in the context of the ethical considerations for which real estate has always been accountable. EXPANSION AND