Chapter 47 Auditing Real Estate CompaniesWord格式.docx

Chapter 47 Auditing Real Estate CompaniesWord格式.docx

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（a）OrganizationalForms, 

（i）LimitedPartnerships, 

（ii）LimitedLiabilityCompanies, 

（iii）PartnershipAgreements, 

（b）RealEstateInvestmentTrusts, 

（c）RegulatoryFramework, 

47.2ACCOUNTINGPRINCIPLESANDPRACTICES 

（a）EquityInvestments, 

（b）RealEstatePropertiesandDeferredCosts, 

（c）ImpairmentandValuationofRealEstateAssets, 

（d）Leasing,Sale,andOperationalPeriod, 

（e）ProfitRecognitiononSalesofRealEstate, 

（f）AccountingbyParticipatingMortgageLoanBorrowers, 

（g）ExtinguishmentofDebt, 

（h）OperatingRentalRevenues, 

47.3AUDITSTRATEGY 

47.4SUBSTANTIVETESTS 

（a）Developer'

sReceivables, 

（b）PropertyAcquisitionandDevelopmentCosts, 

（c）RealEstateSales, 

（d）OperatingRentalRevenues, 

（e）DepreciationExpense, 

47.1OVERVIEWOFTHEINDUSTRY

Theboundariesoftherealestateindustryaredifficulttodefinebecausemanyentitiesthatengageinrealestatetransactionsalsoderivesubstantialrevenuesfromothersources.Forthepurposesofthischapter,arealestatecompanyisonethatderivesitsprincipalrevenuesfromactivitiesinvolvingthecontrol,ownership,orsaleoflandandbuildings.Thisdefinitionencompassescompaniesthatengagein:

∙Owningundevelopedlandforwholesaleorretailsale

∙Landdevelopment

∙Improvingandsellingrealpropertyasaprimaryproduct（e.g.,ahomebuilder）

∙Acquiringandimprovingpropertytobeheldasaninvestmentfortheproductionofcurrentincomeandforfutureappreciation

Manycompaniesareinvolvedinmorethanoneofthoseactivitiesand,inaddition,deriverevenuesfromavarietyofancillaryservicesassociatedwithrealestate,suchasfinancing,propertymanagement,insurance,subcontracting,andbrokerage.Inaddition,anumberofothertypesofbusinesses,suchasbrokerage,leasing,management,andfinancing,arecloselyassociatedwithrealestateownershipandoperations.

（a）OrganizationalForms

Companiesintherealestateindustryareorganizedundervariouslegalforms,includingsoleproprietorships,limitedpartnerships,limitedliabilitycompanies,generalpartnerships,corporations,jointventures,andtrusts.Theformoforganizationisgovernedlargelybytheobjectivesofthebusiness.Forexample,acontractororbuildernormallyselectsthecorporateformoforganizationtoobtainthebenefitsoflimitedliabilitybecauseofthebusinessrisksassociatedwiththistypeofoperation.Ownersofanindividualprojectmayorganizeasalimitedpartnershiptoobtainthebenefitsofbothlimitedliabilityforthepassiveinvestorsandthepass-throughoftaxlossesthatmaybedeductibleincertainsituations.

Realestateisparticularlysensitivetochangesineconomicconditions,andrealestatecompaniesusuallyavoidassemblinglargecentralstaffsandmakingheavycapitalinvestments,sothatoverheadcanbereducedtoaminimumduringdifficulteconomictimes.

（i）LimitedPartnerships.Thelimitedpartnershipformoforganizationisespeciallywellsuitedtorealestateventures.Ithasmanyofthefavorabletaxattributesofageneralpartnership,butprovideslimitedliabilityforthelimitedpartners.Theselimitedpartnersgenerallyareresponsibleonlyforthecapitalthattheyhavecommittedtothepartnership,althoughinsomeinstancestheymayberequiredtoreturncashpreviouslywithdrawnfromthepartnership.Thelimitedpartnershipformenablesthegeneralpartners,whoareusuallydevelopers,toobtainequityfromoutsidesourcesforrealestateprojectsandmaypermitlimitedpartnerstoselltheirinterests（e.g.,thetradingunitsinamasterlimitedpartnership）,thusprovidingthelimitedpartnerswithliquidity.

Investorsinalimitedpartnershipreceiveashareofthepartnershiplosses,whichtheycanusetooffsettaxableincomefromothersourcesincertaincircumstances.Incomefromthesaleofrealestateresultsinacapitalgain,whichreceivespreferentialtaxtreatment.UndertheTaxReformActof1986（TRA86）,lossesfromaninvestmentinalimitedpartnershipareclassifiedaspassivelossesthatcanoffsetonlyotherpassiveincomeandmaysubjecttheinvestortothealternativeminimumtax.

（ii）LimitedLiabilityCompanies.Manystateshavepassedlegislationallowingfortheformationoflimitedliabilitycompanies.Theseorganizationsprovidemembers（shareholders）withtheprotectionofacorporationbutfortaxpurposesaretreatedaspartnerships.Theadvantageofalimitedliabilitycompanyoveralimitedpartnershipisthatitprovidestheshareholderswhofunctionasgeneralpartnerswiththesamelimitedliabilityasthosewhofunctionaslimitedpartners.Thistypeoforganizationeventuallymaybecomethepreferredmethodofownershipofrealestate. 

（iii）PartnershipAgreements.Thepartnershipagreementisasignificantdocumentforrealestatecompaniesorganizedaspartnerships.Theagreementidentifiesthescopeofactivitiesinwhichthepartnershipmayoperate,setsforththepartnership'

stermofexistence,definestheconditionsunderwhichthepartnershipmaybeterminatedordissolvedbeforethestatedterminationdate,anddetailstherespectivepartners'

rightsandresponsibilities.Theagreementaffectsnotonlytheaccountingforthepartnership,butalsotheprofitrecognizedbythedeveloper/generalpartner.Thefollowingprovisionsofatypicalpartnershipagreementareofparticularinteresttotheauditor:

∙CapitalContributionsandBorrowings.Theagreementsetsforththetotalamountofthepartner'

sinvestmentandthepaymentscheduleonwhichcapitalcontributionsaretobemade.Theamountandtimingofcontributionsmateriallyaffectboththeinvestor'

sreturnontheinvestmentandthecostoftheproject.Normally,aninvestorisrequiredtosignapromissorynoteforthecapitalcontributionsthatarepayableafterthedateofadmission.Termsofdefaultandremediesforthegeneralpartnersaredefined,andnormallytheuseofallcapitalcontributionsisspecifiedinthepartnershipagreement.Mostagreementsalsograntthepartnershiptherighttoborrowmoneyfromothersourcesandestablishcertainrequirementsforandlimitationsonsuchborrowings.

∙CapitalAccounts,ProfitsandLosses,CashFlow,andDistributions.Theagreementstatestheaccountingmethod（cashoraccrual）andthefiscalyearofthepartnership（whichisnormallyacalendaryear）.Cashflowandprofitsandlossesnormallyaredefined,andthemethodofallocationamongpartnersisstated.Inaddition,theallocationofgainorlossandoftheproceedsonasaleoftheprojectandthedistributionofproceedsfromarefinancingarespecified.

∙RightsandResponsibilitiesofPartners.Theagreementdefinestherightsandresponsibilitiesofthelimitedpartners.Limitedpartnersusuallyhavetherighttocallmeetings,voteforamendmentstothelimitedpartnershipagreement,andvoteforremovalorsubstitutionofthegeneralpartners;

participationinmanagementbythelimitedpartnersusuallyisprohibited.Inaddition,theagreementsetsforththegeneralpartners'

responsibilitiesformanagingthepartnership.Thesegenerallyincludethepowertoappointthemanaginggeneralpartnerandtherighttoacquirepropertyandtoexecuteamortgagenote,constructioncontract,managementagreement,andotherdocumentsrequiredinconnectionwiththeconstructionandoperationoftheproject.Inaddition,theagreementgenerallyspecifieswhetheranauditorreviewoffinancialstatementswillbeprovidedwithinaspecifiedtimeframe.Themostrelevantprovisionsfromtheauditor'

sviewpointrelatetothegeneralpartners'

righttopayorreceivespecifiedfeesascompensationfororganizinganddevelopingthepartnershipandformanagingtheconstructionphaseoftheproject.Alsosignificantarethegeneralpartners'

obligationstoinitiateandsupportrentaloperations.Usuallythegeneralpartnersandmanaginggeneralpartnerdonotreceiveanycompensationformanagingtheaffairsofthepartnershipintheircapacityasgeneralpartners.Theymay,however,receivefeesthroughrelatedparties,suchasmanagementfeestoaffiliatedmanagementcompanies,forprovidingservicesotherthanthosethatarepartoftheirroleasgeneralpartners.

Thespecifictermsofpartnershipagreementsvarywidely.Theauditorshouldbefamiliarwiththepartnershipagreementtodeterminewhethertheaccountingprinciplesappliedbythepartnershipareinconformitywiththeagreement,andwhetherthegeneralandlimitedpartnershavecompliedwiththerestrictiveprovisionsoftheagreement.Thetermsofthepartnershipagreementcansignificantlyaffecttheamountandtimingoftheprofitadeveloper/generalpartnermayrecognizeonatransactionwiththepartnership.

（b）RealEstateInvestmentTrusts

RealEstateInvestmentTrusts（REITs）arecorporationsthatallowinvestorstopurchasestockatastatedpricepershare.Thestockmaybelistedonanexchangeandactivelytraded,thusprovidinginvestorsameansofliquidity.Aninvestorgenerallyreceivesadividendeachyear,sincetheREITrulesrequirethat95percent（90%commencingin2001）oftaxableearningsbedistributed.IncomefromaREITisconsideredportfolioincomeandthuscannotbeusedtooffsetpassivelosses.

AcommontypeofentitythatholdsrealestateisknownasanUmbrellaPartnershipRealEstateInvestmentTrust（UPREIT）.AnUPREITisanoperatingpartnershipthatownspropertyandhasaREITasitssolegeneralpartner.Thesellerofpropertyhasanoptiontoreceiveoperatingpartnershipinterests（units）orsharesinthe