The Classification by Real Estate Investment Trusts of Distributions from Unconsolidated Entities

This project was prompted by anecdotal observations of classification diversity involving distributions received by real estate investments trusts (REITS) from equity-method investments (EMIs). The common mantra "cash is a fact" results in limited attention being given by standard-setters and regulators to the statement of cash flows and associated classification issues. However, classification diversity, in the absence of supporting facts and circumstances, potentially undermines the comparability and representational faithfulness of financial information. The study of a larger sample of REITs affirmed the presence of classification diversity. Responses from a number of REITs to the researcher's inquiries suggest that some of their classification decisions deviate from relevant GAAP guidance. Classification-related dissent by Financial Accounting Standards Board members to SFAS No 95 may have emboldened some firms to deviate from the classification guidance of SFAS No 95. The results of this study may encourage the Board to review the classification guidance in SFAS No 95, as well as its implementation in practice.