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Navigating REIT audits: overcoming unique challenges with precision and expertise.

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TLDR:

Real estate investment trusts (REITs) present unique challenges for auditors, whether they are publicly traded or privately held. Auditing publicly traded REITs involves complexities such as lease accounting, property valuations, operating expenses, and related-party transactions. On the other hand, auditing privately held REITs requires assessing related-party transactions, property valuations, and weaker internal controls.

Key Elements:

  • Challenges in auditing publicly traded REITs include lease accounting, property valuations, operating expenses, and related-party transactions.
  • Auditors need to maintain open communication with management, leverage technology for data analytics, and perform detailed testing procedures.
  • Auditing privately held REITs involves challenges related to related-party transactions, property valuations, and weaker internal controls.
  • Auditors should conduct thorough inquiries, assess internal valuation specialists, and consider conflicts of interest in fair value measurements.
  • The COVID-19 pandemic has impacted commercial real estate, requiring auditors to evaluate the effect on financial reporting and consider disclosures on the impact of COVID-19.
  • The PCAOB has outlined key considerations for auditors handling financial statements with commercial real estate entities, emphasizing risk identification, asset impairment, and going concern issues.

Overall, auditing REITs requires a deep understanding of industry-specific challenges, adoption of best practices, use of technology, and a forward-looking approach to address the unique complexities in auditing these entities.


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