New Audit Standards Real Estate Companies Need to Meet for 2024
2024 is officially under way and compliance season has kicked off. Like all other years, the one constant in accounting is change.
This year’s changes come from the American Institute of Certified Public Accountants (AICPA) and include updates to Statements on Auditing Standards (SAS). These audit standard updates apply to all entities, regardless of the basis of accounting.
That’s right — your real estate companies will be subject to additional required procedures. The audits of your real estate companies will require additional procedures.
SAS 143 — Auditing accounting estimates and related disclosure
Auditors will take a deeper dive into management’s estimates, examining how they were developed, selected, and the assumptions used to determine them. For funds, the most relevant estimate is the fair value of investments. At the developer/owner/operator level, the most relevant estimates are the straight line rent receivables, estimates of relative sales value, and estimates for recoverability and measuring impairment loss.
SAS 144 — Auditing considerations on the related use of specialist and the use of pricing information obtained from external information sources
Auditors will need to obtain a stronger understanding of any work performed by an outside specialist engaged by management. The SAS also provides guidance on the use of pricing services when evaluating management’s estimates related to the fair value of financial instruments and enhances guidance on when an auditor engages an internal specialist.
SAS 145 — Understanding the entity and its environment and assessing the risks of material misstatement
Auditors will need to obtain a deeper understanding of the control environment, specifically the information technology (IT) environment. The audit team will evaluate the design of controls and inquire if IT controls have been implemented.
The impact on real estate companies
How does this impact you? You will see an increase in inquiries and testing on your internal control environment. These inquiries are required and will assist the auditors in obtaining relevant documentation to meet the new standards. You should also expect an increase in non-recurring audit fees, as most of this work will require additional investment by the audit team that can be leveraged moving forward.
How we can help
If your audit team is anything like the teams here at CLA, none of the above should be a surprise. We’re available to help you navigate your audit or discuss potentially working as your audit firm. If you need help understanding the request being made, we can collaborate with you and your audit firm to get through the required documentation.
Special thanks to Bobby Dormanesh for the assist.
Jeremy is a Principal in the Real Estate Industry. He is a trusted advisor with close to 10 years of experience providing accounting, assurance, and consulting services to real estate industry owners, operators, and developers.
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