BDO's Stuart Eisenberg

Shortly before the start of the holiday season, the Securities and Exchange Commission implemented a new rule that would allow foreign companies to file financial results using international financial reporting standards (IFRS) without reconciling the figures to US generally accepted accounting principles (GAAP). While such regulations are often best left to the accountants to parse, this particular action should be watched carefully by real estate executives, as it may have unintended consequences for the industry, warns Stuart Eisenberg, partner and national director of the Real Estate and Hospitality Services practice in BDO Seidman’s New York office. The worst case scenario? Capital may flee to foreign-based real estate assets and firms. He elaborates further in an interview with GlobeSt.com.

First, though, a primer on the differences in the rules for revenue recognition under IFRS as compared to GAAP, which affect the carrying value of the underlying investments in real estate and real estate related assets.

Under GAAP, real estate is carried at historical cost. Under IFRS, by contrast, it may be recorded at fair value. By having the differing standards, it makes it more difficult to objectively compare operating results of two firms. For example, depending on which valuation method used — discounted cash flow analysis vs. comparable sales analysis — the value of a property can vary widely.