Real Estate Accounting: New Regulations Essay -- The Financial Crisis

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 â€Å"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 s... ...d a company’s continuing involvement in transferred financial assets. Also, Statement 167 requires companies to provide additional disclosures concerning involvement interest entities, allowing significant changes in risk exposure to be reported. The new accounting rules will regulate the real estate market. However, the adjustments to business practices and the respected capital levels will prevail over time. The accounting issues resolving the real estate market will always exist. Accounting regulations are constantly updated to accommodate with the constant change in the economy. FASB along with the SEC will provide updated accounting rules that will affect the lender and the debtor. Whether the new regulations in accounting issues are treated fairly among all parties that are involved; they will have to be carried out in all interrelated transactions.