Скачать презентацию NCREIF Accounting Committee Technical Update October 25 2007 Скачать презентацию NCREIF Accounting Committee Technical Update October 25 2007

fa93740ad0a30319a50bd03e29735eb1.ppt

  • Количество слайдов: 39

NCREIF Accounting Committee Technical Update October 25, 2007 KPMG LLP Presenters: Peter Bloomfield, Audit NCREIF Accounting Committee Technical Update October 25, 2007 KPMG LLP Presenters: Peter Bloomfield, Audit Partner Jeff Podziewski, Audit Senior Manager

Agenda l FASB Statement No. 157, Fair Value Measurements — Real Estate Implications — Agenda l FASB Statement No. 157, Fair Value Measurements — Real Estate Implications — Disclosure Requirements l International Financial Reporting Standards — Status of Convergence — Differences when Accounting for Real Estate l FASB Statement No. 159, The Fair Value Option for Financial Assets and Liabilities — General Partner with Equity Method Investment l Miscellaneous Accounting Topics — EITF 07 -6, Accounting for the Sale of Real Estate to an Entity When the Agreement Between the Investors Includes a Buy-Sell Clause — EITF 06 -8, Applicability of the Assessment of a Buy’s Continuing Investment under FAS Statement No. 66 for Sales of Condominiums l Audit Considerations © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 2

FASB Statement No. 157, Fair Value Measurements Results from the October 17, 2007 FASB FASB Statement No. 157, Fair Value Measurements Results from the October 17, 2007 FASB Meeting l Constituents have expressed concerns with their ability to resolve various implementation issues and fully comply with the requirements on its effective date l Deferral was denied 4 -3 by the Financial Accounting Standards Board l The Board has cited: — Important given the current state of the capital markets — Early adoption has proven to provide valuable information — Door has been left open to defer as it applies to non-financial assets on corporate balance sheets, or private companies who follow GAAP. © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 3

FASB Statement No. 157, Fair Value Measurements, continued What it is – l Provides FASB Statement No. 157, Fair Value Measurements, continued What it is – l Provides a consistent definition of fair value to be applied (exceptions include FAS 123 R, SOP 97 -2 and EITF 00 -21) l Describes the general methods that should be followed in determining fair value l Provides specific disclosure requirements — Level 1 – unadjusted quoted prices for identical assets/liabilities — Level 2 – observable inputs — Level 3 – unobservable market inputs What it isn’t – l Does not indicate when fair value measures should be used l Does not require any new fair value measures © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 4

FASB Statement No. 157, Fair Value Measurements, continued Definition “Fair value is the price FASB Statement No. 157, Fair Value Measurements, continued Definition “Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ” What are people saying? “FAS 157 requires us to learn how to develop measures of hypothetical transactions based on hypothetical market participant assumptions that may never actually manifest themselves in a transaction. ” …Financial Executives International, in a letter to the FASB © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 5

FASB Statement No. 157, Fair Value Measurements, continued Market Participant vs Entity Specific View FASB Statement No. 157, Fair Value Measurements, continued Market Participant vs Entity Specific View l Fair value must be measured from the perspective of the hypothetical potential buyers — The fair value of an asset or liability is not to be measured from the perspective of the asset’s owner l Example: — RE Fund A purchases a portfolio of 6 apartment buildings located throughout the Southeast. Total Purchase Price of $60 (Assume $10 per property). — One property (South Beach) within the portfolio, management did not intend to purchase but, was required for deal. — Various local developers would be very interested in purchasing the property to complete a condo conversion (value of $15 to Condo Converters) — For business purposes, RE Fund A will not sell the property. Under FAS 157, RE Fund A should record the assets at $65. © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 6

FASB Statement No. 157, Fair Value Measurements, continued Market Participants l Market Participant Assumptions FASB Statement No. 157, Fair Value Measurements, continued Market Participants l Market Participant Assumptions Are buyers & sellers in the principal (or most advantageous) market for the asset or liability that are: — Independent of the reporting entity — Knowledgeable — Able to transact for the asset or liability — Willing to transact for the asset or liability l Reporting entity should identify characteristics that distinguish market participants generally (not individually) l When determining market participant assumptions: — Exclude entity specific synergies not available to market participants — Reflect market participants’ views of risk — Presume that market participants will use the asset in a manner that physically possible, legal and financially feasible © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 7

FASB Statement No. 157, Fair Value Measurements, continued When making measurements utilizing Level 3 FASB Statement No. 157, Fair Value Measurements, continued When making measurements utilizing Level 3 inputs, such inputs must be based on the perspective of market participants Example 1 l Entity A is measuring the fair value of a group of assets held for sale using a discounted cash flow model. l Entity A has an internal “hurdle rate” of 15%, that is, Entity A only invest in projects designed to generate a return of 15% + l However, if market participants would demand a higher or lower return, such return should be reflected in discount rate Example 2 l Step 1 in test for asset impairment under FAS 144, an entity must compare undiscounted cash flows with carrying value of the asset l Step 2, if asset is not recoverable, write down to fair value l If, in Step 2, fair value is determined using the income approach, you may have to use different cash flows than those used to determine that the asset was not recoverable © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 8

FASB Statement No. 157, Fair Value Measurements, continued Application to Real Estate Entities Much FASB Statement No. 157, Fair Value Measurements, continued Application to Real Estate Entities Much Broader than you may think: l FAS 141, relating to Business Combinations & Acquisitions l FAS 144, relating to asset impairment l FAS 67, relating to amenities l FAS 143 and FIN 47, Accounting for Asset Retirement Obligations l FAS 13, relating to leasing activities l FAS 66, paragraph 21 mentions Fair Value l Fair value of derivatives and other financial instruments Probably many others!!!! In total, 67 APB or FASB Pronouncements refer to Fair Value. © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 9

FASB Statement No. 157, Fair Value Measurements, continued Impact on FAS 141 Purchase Price FASB Statement No. 157, Fair Value Measurements, continued Impact on FAS 141 Purchase Price Allocation – l Fair Value of each separately identifiable asset should be determined (in-place leases, customer relationship intangible, above/below market leases (including ground leases), land, building, etc) l Should consider if there might be a different valuation premised (“in-use” versus “in-exchange”) for the various assets acquired in a transaction l Not expected to result in significant differences from current practice upon adoption of FAS 157 l Disclosure implications © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 10

FASB Statement No. 157, Fair Value Measurements, continued Impact on FAS 144 Impairments and FASB Statement No. 157, Fair Value Measurements, continued Impact on FAS 144 Impairments and Held for Sale Classification FAS 144 Impairments – l Step 1 – Use entity specific cash flows from the use of the asset to determine if impaired l Step 2 – If not recoverable, write down to “Fair Value” l FAS 157 fair value definition – May be different cash flow assumptions than used in Step 1 (consider market participants view and appropriate valuation premise) FAS 144 Held for Sale Classification l Measure at the lower of carrying value or “Fair Value” less costs to sell © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 11

FASB Statement No. 157, Fair Value Measurements, continued Impact on initial recognition of FAS FASB Statement No. 157, Fair Value Measurements, continued Impact on initial recognition of FAS 143/FIN 47 Asset Retirement Obligations – l FAS 143 Fair Value Definition — The amount at which the liability could be settled in a current transaction between willing parties (quoted market prices in active markets to be used when available) — Allowed for the use estimates of future cash flows and present value techniques consistent with Concept Statement No. 7 l FAS 157 Fair Value Definition — Focus is on amount to transfer the liability — Clarified for an ARO that an expected present value technique will usually be the only appropriate technique to estimate fair value — Consider all risks including “non performance” or “default” risk and include that in the credit-adjusted discount rate rather than in the cash flows Generally, there should not be a significant difference at initial recognition for an ARO under FAS 157 © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 12

FASB Statement No. 157, Fair Value Measurements, continued Disclosure Requirements For major categories of FASB Statement No. 157, Fair Value Measurements, continued Disclosure Requirements For major categories of assets/liabilities measured at fair value on a recurring basis, disclose for each annual and interim period the following: l The fair value measurement, segregated into Level 1, Level 2, and Level 3 categories l A reconciliation of all Level 3 fair value measurements, including: — Total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) — Purchases, sales, issuances, and settlements (net) — Transfers in and/or out of Level 3 (for example, transfers due to changes in the observability of significant inputs) l FAS 157 also requires similar disclosures for fair value measurements made on a non-recurring basis (e. g. , assets acquired in a business combination or impairment charges) — For Level 3, also requires a narrative description of the inputs and the information used to develop the inputs l In annual periods only, the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period — Required for both recurring and non-recurring fair value measurements l Entity is encouraged, but not required, to combine the fair value information disclosed under FAS 157 with other fair value information disclosed under FAS 107, ARB 43, etc. © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 13

FASB Statement No. 157, Fair Value Measurements, continued Disclosure Example: Part 1 © 2007 FASB Statement No. 157, Fair Value Measurements, continued Disclosure Example: Part 1 © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 14

FASB Statement No. 157, Fair Value Measurements, continued Disclosure Example: Part 2 © 2007 FASB Statement No. 157, Fair Value Measurements, continued Disclosure Example: Part 2 © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 15

FASB Statement No. 157, Fair Value Measurements, continued Disclosure Example: Part 3 © 2007 FASB Statement No. 157, Fair Value Measurements, continued Disclosure Example: Part 3 © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 16

IFRS – Recent Activity l In June 2007 the SEC proposed a rule that IFRS – Recent Activity l In June 2007 the SEC proposed a rule that would allow foreign private issuers to file financial statements in accordance with International Financial Reporting Standards without a reconciliation to U. S. GAAP. l The SEC’s proposal is driven by changing economic and regulatory circumstances. Trading markets are becoming more and more interrelated, and cooperation is increasing among global regulators, including the SEC and the Committee of European Securities Regulators. l The SEC believes that eliminating the reconciliation requirement will reduce the cost of preparing regulatory filings and thereby facilitate capital raising in the U. S. by foreign private issuers. l In September 2007, the SEC issued a Concept Release seeking comments on whether to consider permitting domestic companies registered with the SEC to file financial statements that comply with international financial reporting standards as published by the IASB, rather than U. S. GAAP. l The potential change could have broad ramifications for preparers, auditors, users, regulators, colleges and universities, and other interested parties. l Comments on the release are due November 13, 2007. © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 17

A Short History of the IASB 1973: Foundation of the International Accounting Standards Committee A Short History of the IASB 1973: Foundation of the International Accounting Standards Committee (IASC) in London as the result of an agreement between accountancy bodies in nine countries 1998: Completion of 39 'core' international accounting standards (IASs). The number of IASC members passes one hundred 2001: The IASC Foundation is established 2001: The IASB assumes the standard-setting responsibilities from IASC and is overseen by the IASC Foundation 2002: The EU Parliament confirms the endorsement process by which IFRSs will become the sole set of standards for EU listed companies 2005: Adoption of IFRSs for listed companies in the EU 2006: The US FASB and the IASB publish a Memorandum of Understanding detailing a roadmap to convergence 2007: US SEC publishes a proposal to eliminate reconciliation requirement foreign private issuers using IFRSs © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 18

International Financial Reporting Standards – Overview l IFRS is the term used to indicate International Financial Reporting Standards – Overview l IFRS is the term used to indicate the whole body of IASB authoritative literature. l The overriding requirement of IFRS is for the financial statements to give a fair presentation (or true and fair view). l A hierarchy of alternative sources is specified when IFRS does not deal with a particular issue. This hierarchy includes industry practice in some instances. © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 19

International Financial Reporting Standards A True and Fair View l The overriding requirement of International Financial Reporting Standards A True and Fair View l The overriding requirement of IFRS is for the financial statements to give a fair presentation (true and fair view). Compliance with IFRS, with additional disclosure when necessary, is presumed to result in a fair presentation. l When compliance with a standard or interpretation would be misleading, an entity departs from the required treatment in order to give a fair presentation, if the relevant regulator does not prohibit the override. If an override can not be used because it is prohibited by the regulator, then additional disclosure is required in the notes to the financial statements. In such cases extensive disclosures are required, including details of the departure, the reasons for the departure and its effect. The use of a true and fair override is very rare under IFRS. l Unlike IFRS, the objective of U. S. GAAP is fair presentation in accordance with U. S. GAAP, which is more restrictive than the requirement under IFRS. © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 20

International Financial Reporting Standards, continued Substance over Form l IFRS – The Framework establishes International Financial Reporting Standards, continued Substance over Form l IFRS – The Framework establishes a general requirement to account for transactions in accordance with their substance, rather than only their legal form. l U. S. GAAP – Unlike IFRS, substance over form is not identified as a qualitative characteristic of the Framework, but rather is dealt with in specific standards. This difference in approach may give rise to differences from IFRS in practice. © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 21

IASB Work Plan as of September 30, 2007 Convergence Projects Status Joint Ventures IFRS IASB Work Plan as of September 30, 2007 Convergence Projects Status Joint Ventures IFRS Standard to be released in 2 nd half of 2008 Impairment Staff work in progress Income Taxes Exposure Draft in Q 1 2008 Investment Properties Staff work in progress Consolidation Discussion Paper in Q 1 2008 Fair Value Measurement Guidance Roundtable discussion in Q 2 2008 Revenue Recognition Discussion Paper in Q 1 2008 Leases Discussion Paper in 2 nd half of 2008 © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 22

IFRS vs U. S. GAAP – Differences in Financial Reporting IFRS U. S. GAAP IFRS vs U. S. GAAP – Differences in Financial Reporting IFRS U. S. GAAP l Comparative information is required for the preceding period only, but additional periods and information may be presented. l For private companies – Unlike IFRS, U. S. GAAP does not require comparative information. l “Push down” accounting, whereby fair value adjustments are recognized in the financial statements of the acquiree, is not permitted under IFRS. l Unlike IFRS, “push down” accounting, whereby fair value adjustments are recognized in the financial statements of the acquiree, is required for SEC registrants in certain circumstances. l Generally an entity must present its balance sheet classified between current and non-current. An unclassified balance sheet based on the order of liquidity is acceptable only when it provides reliable and more relevant information. l Unlike IFRS, U. S. GAAP does not contain a requirement to present a classified balance sheet. Unlike IFRS, there is no restriction on when an unclassified balance sheet based on the order of liquidity can be presented. l Revenue recognition is based mainly on a single standard that contains general principles that are applied to different types of transactions. l Unlike IFRS, there is extensive guidance on revenue recognition specific to the industry and type of contract. © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 23

IFRS vs U. S. GAAP – Differences in Investment Property IFRS l Investment property IFRS vs U. S. GAAP – Differences in Investment Property IFRS l Investment property is property held to earn rental income or for capital appreciation or both. l Investment property is recognized initially at cost. Subsequent to initial recognition, all investment property is measured using either the fair value model or the cost model. When the fair value model is chosen, changes in fair value are recognized in profit or loss. l Disclosure of the fair value of all investment property is required, regardless of the measurement model used. U. S. GAAP (Historical Cost Accounting) l Unlike IFRS, there is no specific definition of investment property; such property is accounted for as property, plant and equipment unless it meets the criteria to be classified as “held for sale”. l Like IFRS, investment property is recognized initially at cost. Unlike IFRS, subsequent to initial recognition all investment property is measured using the cost model. l Unlike IFRS, there is no requirement to disclose the fair value of investment property. © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 24

Recently Issued IFRS Interpretations IFRIC # 12 - Service Concession Arrangements (Infrastructure Projects) Infrastructure Recently Issued IFRS Interpretations IFRIC # 12 - Service Concession Arrangements (Infrastructure Projects) Infrastructure within the scope of this Interpretation shall not be recognized as property, plant and equipment of the operator because the contractual service arrangement does not convey the right to control the use of the public service infrastructure to the operator. The operator has access to operate the infrastructure to provide the public service on behalf of the grantor in accordance with the terms specified in the contract If the operator provides construction or upgrade services the consideration received or receivable by the operator shall be recognized at its fair value. The consideration may be rights to: (a) a financial asset, or (b) an intangible asset. The operator shall recognize a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset from, or at the, direction of the grantor for the construction services; the grantor has little, if any, discretion to avoid payment, usually because the agreement is enforceable by law. The operator has an unconditional right to receive cash if the grantor contractually guarantees to pay the operator (a) specified or determinable amounts or (b) the shortfall, if any, between amounts received from users of the public service and specified or determinable amounts, even if payment is contingent on the operator ensuring that the infrastructure meets specified quality or efficiency requirements. The operator shall recognize an intangible asset to the extent that it receives a right (a license) to charge users of the public service. A right to charge users of the public service is not an unconditional right to receive cash because the amounts are contingent on the extent that the public uses the service. © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 25

Recently Issued IFRS Interpretations IFRIC # 13 – Customer Loyalty Programs (Hotel Owners) – Recently Issued IFRS Interpretations IFRIC # 13 – Customer Loyalty Programs (Hotel Owners) – An entity should recognize award credits as a separately identifiable component of a sales transaction and consequently defer the recognition of revenue for the awards in accordance with IAS 18. 13. The consideration allocated to the award credits is the amount for which the award credits could be sold separately, i. e. , the fair value. IFRIC 13 is effective for annual periods beginning on or after July 1, 2008 but earlier application is encouraged © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 26

FASB Statement No. 159 General Partner with Equity Method Investments l Entities are permitted FASB Statement No. 159 General Partner with Equity Method Investments l Entities are permitted to make an irrevocable election to measure most financial instruments at fair value l Certain nonconsolidated equity or cost method investments technically meet the definition of a financial asset l Equity method investments that compensate an investor future services in addition to providing an equity-like return are not eligible for the Fair Value Option (FVO) — For example, a GP interest in which the GP has significant management responsibilities and is entitled to a return that is disproportionate to the capital contributed l If investors were permitted to record such investments at FV, the result would be day 1 gains related to future services — Would result in revenue recognition before the related services are performed l Evaluation of whether a financial asset is eligible for the FVO under Statement 159 should focus on the substance of the arrangement — Obligation to provide services may be in a separate contract — Financial asset and contract for services may be interdependent or not separable — Service contract may contain only a portion of the economic compensation with the balance as a component of the investment instrument l Indicators that an equity investment may contain a significant compensation element related to future services: — The FV of the investment includes a return disproportionately greater than the return to passive investors and the services provided by the investor affect the future payout — The FV of the investment at inception is greater than the amount of the investment and the investor is expected to provide services beyond those customary of an investor acting in a non-management role © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 27

FASB Statement No. 159 – Knowledge Check REIT A is the GP of Partnership FASB Statement No. 159 – Knowledge Check REIT A is the GP of Partnership Z l REIT A invested 1% of total capital for its GP interest l REIT A manages assets of Z through a separate services contract and receives a management fee — REIT A is restricted from transferring its GP interest over the term of the initial services contract l GP interest entitles REIT A to 10% of net income and provides significant additional compensation if Z achieves certain operational targets l FV of A’s GP interest > REIT A’s investment l REIT A also holds an LP interest in Z — REIT A invested the same amount and receives the same return as other LPs — FV of LP interest = REIT A’s LP investment Can REIT A apply the FVO to its GP interest in Z? Can REIT A apply the FVO to its LP interest in Z? © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 28

EITF 07 -6, Accounting for the Sale of Real Estate to an Entity When EITF 07 -6, Accounting for the Sale of Real Estate to an Entity When the Agreement Between the Investors Includes a Buy-Sell Clause Facts l Joint venture formed l Party A contributes real estate l Party B contributes cash, which is then distributed to Party A l Each party receives a 50% interest in the venture l Agreement includes a Buy-Sell clause — Either party make an offer for the other party’s interest in J. V. — Other party must accept offer, or sell its interest for the offer amount l Other than the potential impact of the Buy-Sell clause the transaction meets the criteria for partial sale and profit recognition © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 29

EITF 07 -6, Accounting for the Sale of Real Estate to an Entity When EITF 07 -6, Accounting for the Sale of Real Estate to an Entity When the Agreement Between the Investors Includes a Buy-Sell Clause, continued FAS 66, paragraph 29: “The seller has an obligation to repurchase the property, or the terms of the transaction allow the buyer to compel the seller or give an option to the seller to repurchase the property. ” l A buy-sell clause may constitute a prohibited form of continuing involvement if the buyer cannot act independently from the seller or if the seller is economically compelled to reacquire the other investor’s interest in the jointly owned entity (thereby reacquiring the real estate) © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 30

EITF 07 -6, Accounting for the Sale of Real Estate to an Entity When EITF 07 -6, Accounting for the Sale of Real Estate to an Entity When the Agreement Between the Investors Includes a Buy-Sell Clause, continued Does a Buy-Sell clause preclude partial sale and profit recognition? Buy – Sell clause is a contingent option and FAS 66 doesn’t distinguish between contingent and noncontingent options. Evaluation of whether a Buy-Sell clause constitutes prohibited continuing involvement should be based on facts and circumstances of the arrangement. Evaluation of facts and circumstances if the strike price in the Buy-Sell clause can only be fair value; otherwise the clause is an option and precludes partial sale and profit recognition. © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 31

EITF 07 -6, Accounting for the Sale of Real Estate to an Entity When EITF 07 -6, Accounting for the Sale of Real Estate to an Entity When the Agreement Between the Investors Includes a Buy-Sell Clause, continued Factors that may indicate that the seller has substantial continuing involvement in the real estate: l The price specified in a buy-sell clause may indicate that the parties have already negotiated for the seller to acquire the buyer’s interest. For example, a fixed price is specified in the buy-sell clause. l The seller has a strategic necessity or an investment strategy that indicates that it cannot relinquish its ownership rights to the buyer and therefore compel the seller to reacquire full ownership of the real estate. l The seller has arrangements with the jointly owned entity, such as management or third-party leasing arrangements, that may economically compel the seller to reacquire the real estate in order to retain the economic benefits (for example, leasing commissions from lessees) or escape the negative economic consequences (for example, below-market contract with the entity) of such arrangements. l Tax implications economically compel the seller to acquire the buyer’s interest in the entity (thereby reacquiring the real estate). © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 32

EITF 07 -6, Accounting for the Sale of Real Estate to an Entity When EITF 07 -6, Accounting for the Sale of Real Estate to an Entity When the Agreement Between the Investors Includes a Buy-Sell Clause, continued Factors that may indicate that the buyer can compel the seller to repurchase the property: l The buyer is financially unable to acquire the seller’s interest. A requirement for an appraisal or for the offer price to be at fair value may provide protection to the buyer in such circumstances and provide evidence that the buyer is financially unable to acquire the seller’s interest. However, a requirement for an appraisal may not be evidence of compulsion in other situations. l The buy-sell clause stipulates a specified rate of return to the buyer (or seller), indicating that the buyer may not fully participate in the rewards of ownership from the real estate. l The buyer has a strategic necessity or an investment strategy that requires that it sell its interest to the seller. l The buyer is legally restricted from acquiring the seller’s interest. l If the real estate is integrated into the seller’s business, the buyer may not have alternative means available, such as sale to an independent third party, to realize its economic interest. l Tax implications economically compel the buyer to sell its interest in the entity to the seller. © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 33

EITF 06 -8, Applicability of the Assessment of a Buy’s Continuing Investment under FAS EITF 06 -8, Applicability of the Assessment of a Buy’s Continuing Investment under FAS Statement No. 66 for Sales of Condominiums l FAS 66 provides guidance on the accounting for real estate sales including specific guidance on condo sales l A condo seller can recognize profit during the construction period under the percentage of completion method if certain criteria are met — One of those criteria is that “sales prices are collectible” l FAS 66 requires a seller to consider both the buyer’s initial and continuing investment to evaluate whether the “sales price is collectible” l Questions have arisen in practice as to whether the specific profit recognition guidance for condo sales requires the buyer to meet the FAS 66 continuing investment requirements At the November 29, 2006 meeting, the EITF ratified the consensus: l The continuing investment criteria, in addition to the other criteria in ¶ 37 of FAS 66, must be met during the construction period in order to recognize profit on a percentage-of-completion basis for condominium sales; l This EITF is effective for the first annual reporting period beginning after March 15, 2007; and l Entities that have not accounted for sales of condominiums in a manner consistent with this consensus would recognize a cumulative-effect adjustment at the beginning of the year of adoption. © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 34

Year End Audit Considerations SAS No. 112, Communicating Internal Control Related Matters Identified in Year End Audit Considerations SAS No. 112, Communicating Internal Control Related Matters Identified in an Audit l Issued May 2006 and supersedes SAS No. 60, Communication of Internal Control Related Matters Noted in an Audit l Effective for audits of financial statements for periods ending on or after December 15, 2006 l Incorporated the definitions of terms control deficiency, significant deficiency and material weakness as defined in PCAOB Standard No. 2 — Eliminates the term reportable condition and replaces it with significant deficiency — Redefines the term material weakness — Requires the auditor to communicate significant deficiencies and material weaknesses to management and those charged with governance — Communication is required in writing and must be issued no later than 60 days following the release date of the auditors report on the financial statements l A control deficiency may involve the control’s design, operation or both. l Control Deficiency — Design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. l Significant Deficiency — A control deficiency, or a combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles, such that there is more than a remote likelihood that misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected. © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 35

Year End Audit Considerations, continued l Material Weakness — A significant deficiency, or combination Year End Audit Considerations, continued l Material Weakness — A significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. l “More than Inconsequential” — Relates to the magnitude of potential misstatements, not on whether a misstatement actually has occurred l Auditor should conclude with prudent officials on the classification of deficiencies l Standard provides eight circumstances which would be regarded as a significant l Current Standards still apply: — The auditor may communicate in writing that no material weaknesses were identified in the audit. — The auditor is not required to perform procedures to identify deficiencies in internal control or to express an opinion on the entity’s internal control © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 36

Year End Audit Considerations, continued SAS No. 114, The Auditor’s Communication With Those Charged Year End Audit Considerations, continued SAS No. 114, The Auditor’s Communication With Those Charged With Governance l Issued December 2006 and supersedes SAS No. 61, Communication with Audit Committees l Effective for audits of financial statements for periods beginning on or after December 15, 2006 l Establishes standards and provides guidance on the auditor’s communication with those charged with governance in relation to an audit of the financial statements l Principal purpose for communications: — Communicate responsibilities of the auditor in relation to the financial statement audit, including the planned scope and timing of the audit — Obtain from those charged with governance information relevant to the audit — Provide timely observations arising from the audit l Scope and Timing Communications — Approach to address significant risks — Approach to internal control testing — Materiality considerations — Internal audit — Entity’s objectives and strategies — Communications from regulators © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 37

Year End Audit Considerations, continued l Significant Findings from the Audit — Qualitative aspects Year End Audit Considerations, continued l Significant Findings from the Audit — Qualitative aspects of the entity’s significant accounting practices — Significant difficulties encountered during the audit — Uncorrected and corrected misstatements — Disagreements with management — Other findings or issues, in the auditors judgment are significant to those charged with governance regarding their oversight in the financial reporting process l Forms of communication — In writing for significant items — Oral communication based on auditors professional judgment © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 38

Presenters Peter Bloomfield Audit Partner KPMG Boston (617) 988 -1173 pbloomfield@kpmg. com Jeffrey Podziewski Presenters Peter Bloomfield Audit Partner KPMG Boston (617) 988 -1173 [email protected] com Jeffrey Podziewski Audit Senior Manager KPMG Hartford (860) 297 -5518 [email protected] com © 2007 KPMG LLP, a U. S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the U. S. A. 10968 39