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Real Estate Accounting and Auditing

Author/Moderator: Goodman & Co.
Publisher: AICPA
Availability: In Stock
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Description

This course provides an in-depth study of the unique requirements that apply at each stage of the real estate life cycle. It gives practical, how-to-do-it coverage of accounting considerations related to the development, ownership and operation of real estate assets. In addition, it covers financial statement considerations for real estate entities and provides guidance on audit planning and performance.

Objectives: 

  • Understand the accounting and auditing standards governing real estate
  • Identify accounting and auditing problems surrounding real estate transactions

Prerequisite:  None

Table of Contents

  • Chapter 1 - Overview
    • Course Objectives
    • Introduction
  • Chapter 2 - An Overview of Real Estate Assets and Transactions
    • Learning Objectives
    • Introduction
    • Definition of Real Estate
    • Unique Characteristics of Real Estate
      • The Need for Financing
      • Negotiations and Complex Transactions
      • Long-Term Investment Cycle
      • Recap
    • Real Estate Markets
      • Characteristics of a Real Estate Market
      • The Laws of Supply and Demand
      • The Role of Government
    • Summary
  • Chapter 3 - Accounting for the Acquisition and Development of Real Estate Assets
    • Learning Objectives
    • Introduction
    • Overview of the Accounting Issues
    • Preacquisition: The Accounting Rules
      • Case Study: The North Village Ice Rink
      • Capitalizing, Expensing, and Implementing
      • Watch for These Accounting Problems
      • Questions - North Village Ice Rink: Preacquisition Costs
    • Acquisition Costs: The Accounting Rules
      • Watch for These Accounting Problems
    • Development Costs: The Accounting Rules
      • Case Study: The North Village Ice Rink (Continued)
      • Project Costs
      • Capitalized Interest
      • Other Development Costs
      • Selling Costs
      • Questions - North Village Ice Rink: Acquisition and Development Costs
    • Projects under Development: Assessing Possible Impairment
      • Events or Changes in Circumstances That May Indicate Impairment
      • Recognition of Impairment
      • Other Issues: Abandonments and Changes in Use
      • Watch for These Problems
    • Allocating Capitalized Costs
      • Three Steps
      • Project Budgets
      • Methods of Allocating Costs
      • Allocating the Costs of Amenities
      • Watch for These Problems
      • Questions - Cost Allocations
    • Summary
  • Chapter 4 - Accounting for Rental Operations
    • Learning Objectives
    • Introduction
    • The End of the Real Estate Development Period
    • Rental Costs
      • Initial Direct Costs
      • Other Rental Costs
      • Amortization Period
    • Accounting for Rental Income
      • Rent Escalations
    • Accounting for Lease Incentives
    • Contingent Rentals
    • Accounting for Lease Modifications
    • Expense Reimbursements
    • Financial Statement Presentation and Disclosure
    • Summary
    • Question
      • Required
  • Chapter 5 - Accounting for Investments in Real Estate Ventures
    • Learning Objectives
    • Introduction
    • Pop Quiz - Accounting for Investments
      • Solution to Pop Quiz
    • Types of Ventures and How to Account for Them
      • Forms of Real Estate Ventures
      • Determining Which Accounting Method to Use
      • When Is the Investor's Interest Minor?
    • Special Considerations When Applying the Equity Method to Real Estate Ventures
      • Allocating Profits and Losses
      • Losses in Excess of the Amount Invested
      • Impairment Losses
    • Accounting for Transactions with a Real Estate Venture
      • Capital Contributions
      • Loans and Advances to a Venture
      • Capitalized Interest on Investments in Real Estate Ventures
      • Accounting for Interest Income on Loans to a Real Estate Venture
      • Providing Services to a Venture
    • Off-Balance-Sheet Financing
      • Synthetic Leases
    • Summary
    • Questions
  • Chapter 6 - Accounting for the Impairment of Completed Real Estate Projects
    • Learning Objectives
    • Introduction
    • Overview of FASB Statement No. 144
      • Classification of the Project
      • Determining Whether a Project Is Held for Use or Held for Disposal
      • Changes to a Plan of Sale
      • Summary of the Guidance in FASB Statement No. 144
    • Completed Projects Held for Use or Investment
      • Events or Changes in Circumstances That May Indicate Impairment
      • Estimating Expected Future Cash Flows
      • Estimating Fair Value
      • Impairment of Completed Projects Held for Use: Other Considerations
    • Completed Projects to Be Disposed of By Sale
      • Costs to Sell
    • Summary
    • Questions
      • Required
  • Chapter 7 - Accounting for the Sale of Real Estate Assets
    • Learning Objectives
    • Introduction
    • Substance Over Form
    • The Two Basic Principles of FASB Statement No. 66
    • The Four Criteria of FASB Statement No. 66
    • Part I
      • Full Accrual Profit Recognition - Accounting for Sales That Do Not Involve Seller Financing
      • Accounting for Sales Involving Seller Financing
      • Exercise 7-1: Sale of a Mobile Home Park
      • Solution to Exercise 7-1: Sale of a Mobile Home Park
      • Recap
      • Questions - Part I: Full Accrual Profit Recognition
    • Part II
      • Accounting for Transactions That Do Not Qualify for Full Accrual Profit Recognition
      • Questions - Part II: Sales of Real Estate
    • Summary
    • Appendix 7A - Accounting for Continuing Involvement FASB Statement No. 66, Paragraphs 25-43
      • Continuing Involvement Without Transfer of Risks and Rewards
    • Appendix 7B - Methods Other Than Full Accrual Profit Recognition, FASB Statement No. 66, Paragraphs 56-68
      • Installment Method
      • Cost Recovery Method
      • Deposit Method
      • Reduced-Profit Method
  • Chapter 8 - Accounting for Sale-Leasebacks and Nonmonetary Exchanges
    • Learning Objectives
    • Introduction
      • Sale-Leaseback Transactions
      • Substance over Form Issues
      • A Description of Sale-Leaseback Accounting
      • Determining Whether a Transaction Qualifies for Sale-Leaseback Accounting
      • Recognizing Profit or Loss
      • Questions - Sale-Leaseback Transactions
    • Nonmonetary Exchanges
      • Nonmonetary Transactions That Do Not Have Commercial Substance
      • Question - Nonmonetary Exchanges
    • Summary
      • Sale-Leaseback Transactions
      • Nonmonetary Exchange
    • Appendix - Excerpts from FASB Statement No. 28
  • Chapter 9 - Planning the Audit of a Real Estate Entity's Financial Statements
    • Learning Objectives
    • Introduction
    • Professional Skepticism
    • Understanding the Client and the Industry in Which It Operates
      • The Audit Risk Alert
      • Other Sources
      • Knowledge of the Client
      • Where to Go for Information about the Client
    • Introduction to the Risk Assessment Standards
    • Risk Assessment
      • Related-Party Transactions
    • Analytical Procedures
    • Internal Control Considerations
      • Overview of SAS No. 109 and SAS No. 110
      • Applying SAS No. 109 and SAS No. 110 to Audits of Real Estate Entities
      • Communicating Internal Control Related Matters under SAS No. 112
      • Communication with Those Charged with Governance under SAS No. 114
    • Considering the Possibility of Fraud
      • Auditor's Response
      • Frauds Common to Real Estate
    • Planning Substantive Tests
    • Going Concern Considerations
    • Client Representations
    • Summary
    • Questions
      • Required
  • Chapter 10 - Auditing Real Estate Transactions
    • Learning Objectives
    • Introduction
    • A Quick Review of Audit Theory
    • Cost Capitalization and Allocation
      • Overall Audit Objectives and Planning Considerations
      • Watch for These Things
    • Rental Income
      • Overall Audit Objectives and Planning Considerations
      • Watch for These Things
    • Valuation and Impairment
      • Overall Audit Objectives and Planning Considerations
      • Watch for These Things
    • Sales of Real Estate
      • Overall Audit Objectives and Planning Considerations
      • Watch for These Things
    • Summary
    • Questions
    • Appendix - Audit Programs
      • Audit Program Steps: Cost Capitalization
      • Audit Program Steps: Rental Income
      • Audit Program Steps: Valuation and Impairment
  • Chapter 11 - Techniques for Estimating Fair Value of Real Estate Assets
    • Learning Objectives
    • Introduction
    • Real Estate Appraisers
    • Market Value vs. Fair Value
      • Fair Value
      • Market Value
    • Date of the Appraisal
    • The Real Estate Appraisal Process
    • The Cost Approach
    • Market Data or Comparable Sales Approach
    • Direct Capitalization Approach
      • Calculating NOI
      • What Is the Capitalization Rate and How Is It Determined
      • Applying the Direct Capitalization Approach
    • Discounted Cash Flow
      • Determining the Discount and Terminal Capitalization Rate
    • Other Considerations
    • Summary
    • Questions
  • Chapter 12 - Ethics Focus: Accounting and Auditing
    • Ethics Overview
    • Recent Developments
    • Spotlight on Independence
    • Key Ethical Dilemmas
    • Addressing Ethical Dilemmas
    • Available Resources
  • Chapter 13 - Latest Developments
  • Appendix A - AICPA Audit and Accounting Guide - Guide for the Use of Real Estate Appraisal Information
  • Appendix B - Statement on Standards for Valuation Services No. 1

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Excerpts

Chapter 1

Overview

Course Objectives

At the conclusion of this course you should

  • Understand the unique features of real estate assets and how these features impact the accounting and auditing of real estate transactions.
  • Be able to account for and audit the acquisition and development of real estate assets.
  • Be able to account for and audit rental property operations.
  • Know how to properly recognize impairment losses on real estate assets and to audit estimates of these losses.
  • Be able to account for and audit sales and other transfers of real estate assets.
  • Understand the ethical discussion and requirements of our profession.

Introduction

We have designed this course to introduce you to accounting and auditing for real estate assets and transactions. Notice that our emphasis is on real estate assets and transactions. Most CPE courses and practice aids attempt to focus on the real estate industry, but as a practice matter, many businesses in a wide variety of industries buy, sell, or own real estate assets, and the CPAs serving those businesses must be concerned with the accounting and auditing rules relating to real estate.

It is this fact - that real estate assets can be owned by virtually any entity - that causes problems for the public practitioner who otherwise would have no need to be familiar with the voluminous and complex accounting and auditing standards related to real estate. This course is well suited to the CPA involved with a real estate entity, but it has been structured also to help those whose business or clients become involved in that one-time, out of the ordinary, real estate transaction.

The course is divided into two parts: section one deals with accounting issues; section two, with auditing. Within each section, unit organization approximates the lines of the real estate development cycle. Initial units cover the acquisition and development of real estate, followed by an examination of the holding, operating, and (possible) write down of real estate assets. Then we treat sales and transfers of real estate. We conclude with two units on auditing real estate assets and transactions. In the last unit of the course we give you some techniques for estimating the fair value of real estate assets.

Chapter 2

An Overview of Real Estate Assets and Transactions

Learning Objectives

Specifically, at the end of this chapter you should

  • Have a working definition of "real estate."
  • Be familiar with the unique features of real estate assets and transactions and how these features impact accounting and auditing issues.
  • Be familiar with the nature of real estate markets and how these markets determine the value of real estate assets.

Introduction

Real estate assets have some unique features, which can affect the way real estate transactions are structured, accounted for, and audited. For that reason, this course begins with a discussion of the nature of real estate assets.

Definition of Real Estate

For our purposes, the term real estate refers to the legal right to use or control a parcel of real property. Real property (as distinguished from personal property) includes land, permanent buildings attached to land, minerals beneath the surface of land, and air rights. Exhibit 2-1 includes a listing of some of the more typical types of real estate assets.

Exhibit 2-1: Typical Real Estate Assets

Real estate assets can include the following:

  • Undeveloped land
  • Single-family residential buildings
  • Multi-family residential buildings, such as apartment buildings, condominiums, or town homes
  • Retail buildings, such as shopping malls or strip shopping centers
  • Office buildings
  • Industrial buildings, such as warehouse or manufacturing facilities
  • Hotels

Videocourse Details

NASBA Field of Study: Accounting and Auditing
Level: Basic
Recommended CPE Credit: 15 (Accounting - 11, Auditing - 4)
Important Information on Your CPE Credit
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