Clearly, the real estate landscape hasn’t gotten any easier to navigate over the past several years. As if the overall economic downturn and capital crisis weren’t enough to deal with, changes to accounting and tax rules add another layer of complexity to doing business.
“The plethora of new rules and regulations have a substantial impact on the accounting, tax and regulatory sides of the business,” says Scott Farb, chairman of the National Real Estate Committee for the Reznick Group. “There’s been significant legislation that will have an impact on financial reporting; I don’t even think it’s all been completely analyzed. Even the accounting rules are getting so complicated and changing so fast that companies are having a very difficult time keeping up and complying with all the changes.”
The rules of the game have changed dramatically, maintains Brent Solomon, the principal in charge of the Century City, CA-based firm’s Valuation and Transaction Advisory Group. And they’ve changed in a way that puts greater pressure on those analyzing deals and firms’ books. “Hiding a problem because a property is purchased and reported at cost is not an option anymore,” he says. “There’s more emphasis on due diligence and ensuring a complete evaluation of the asset and local economic conditions are done.”
Some critics say the changes are making the markets too complicated and are occurring too quickly for anyone to keep up. “It’s a new world in terms of the pace and depth of change,” comments Michael Beck, an audit principal in Reznick’s Atlanta office. “The FASB was even asked to slow down because of the market’s inability to accurately consider their impact and implement them. There’s a limit on how fast those changes can be put into place.”
For instance, he notes, FASB is currently examining the issue of revenue recognition, which would impose one standard across all industries. “When you change how people account for things at their root cause, you impact their processes and controls,” says Beck. “All their controls have to have one goal, which is to create accurate financial reporting. There are big companies out there with lots of subsidiaries and lines of business that would all have to be brought into conformity with the new rules.”
Better or worse, these changes are happening—rapidly. So how does the industry keep up? That’s where a dedicated consulting firm comes in. Previously brought in to consult primarily on tax and accounting issues, CPA firms like Reznick have become an invaluable resource for industry players who need help staying abreast of the evolving regulatory environment.
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