Accounting for the Value of OREO Properties Held for Sale
Accounting and regulatory guidance for Other Real Estate Owned (OREO) has been updated and will require changes for institutions to ensure compliance with Generally Accepted Accounting Principles and regulatory reports. For example, the new sources of accounting guidance for sales of foreclosed real estate include the FASB’s Accounting Standards Codification (ASC) Topic 610, Other Income, and ASC Topic 606, Revenue from Contracts with Customers. This new GAAP guidance applies to all transactions in which an institution provides financing to the buyer of the other real estate owned. This is important since the guidance covers whether an institution will recognize the entire gain or loss on the sale, if any, and whether the outstanding OREO balance can be derecognized from the institution’s financial statements at the time of sale. If the transaction does not comply with the new requirements, the OREO balance will remain on the institution’s financial statements.
During this important presentation, Gary Deutsch, CPA MBA, will cover changes to GAAP and updated regulatory guidance for institutions dealing with both residential and commercial real estate foreclosures. As real estate markets continue to improve, sales prices are on the rise which could be beneficial to institutions, but only if proper accounting has been used with OREO transactions. Institutions that don't follow the proper accounting rules may find they have misrepresented their current period gains and losses in their financial statements. This misrepresentation could potentially adversely impact the institution's capital for both accounting and regulatory purposes.
WHAT YOU’LL LEARN
- Determining if the initial foreclosure transaction complies with GAAP for long-lived assets held for sale
- Recognizing OREO value changes during the asset holding period
- Recording OREO gains
- Recognizing a sale of OREO
- Accounting for loans to facilitate a sale
- Tracking continuing investment requirements for OREO buyers
- Complying with sale accounting requirements in the deal closing process
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