- What the state of revenue recognition looks like today
- The differences between the original FAS 66 and new revenue recognition standard
- Why the post 2014 guidance allows for more freedoms in real estate deal structures
Not too long ago, accounting standards established by the American Institute of Certified Public Accountants required real estate companies to navigate various requirements for purchase and sales agreements that often resulted in straight forward AS-IS, WHERE-IS terms. But that changed in May 2014, when the FASB issued new guidelines designed to make revenue recognition standards more consistent across industries. Known as “Topic 606,” the new guidance required all companies to disclose additional revenue information in their financial statements.
In this edition of Weaver: Beyond the Numbers, Weaver’s Partner-in-Charge of Real Estate Services, Howard Altshuler, spoke about how different the FAS 66 was prior to the new guidance saying that, “FAS 66 had prescriptive requirements that would enable a company to recognize revenue on a real estate sale. Primarily, they had to transfer title, that’s a given. You had to have a really strong down payment, or all cash. You had to limit the amount of future participation with the project once it was sold.”
Once FASB released the new guidance, the rules all changed drastically, and more freedoms were enabled. The new rules set in place allowed companies to structure sales agreements in more creative ways.
According to Altshuler, “When Topic 606 came out, it went from that rules-based approach to more of a concepts-based approach. And some of those concepts were a little bit different. What it does is put things into the context of a performance obligation.”
To hear more of Weaver’s discussion about Topic 606 and its implications, as well as other news about the real estate industry, check out this podcast and others at weaver.com.