The Financial Accounting Standards Board is seeking comments on a proposed Accounting Standards Update that would smooth out a bit of diversity in how companies deconsolidate certain real estate assets because of a debt default.

FASB's Emerging Issues Task Force recommended FASB adopt the rule to tell companies they must treat real estate as real estate, even if it is contained in a stand-alone subsidiary that does little else than hold the real estate assets. FASB says the guidance would improve Generally Accepted Accounting Principles by eliminating practice differences and emphasizing that accounting should reflect the substance of the transaction rather than the form.

“There are very different rules around the accounting of the sale of real estate compared with the sale of a subsidiary,” says Mark LaMonte, managing director at Moody's and a member of the EITF. “A company could have a subsidiary where the only real asset is a piece of property. This guidance is saying if you have that kind of subsidiary, all you're really selling is real estate, so account for it under the real estate guidance.”

Separately, FASB also recently finalized some other EITF recommendation related to fees paid to the U.S. government by health insurers and revenue recognition for health care entities. For health insurers, the new guidance says fees that insurers will have to pay as a result of health care reform must be shown upfront as a liability in the calendar year incurred with the deferred cost amortized to expense on a straight-line basis.

For health care entities, the new guidance is meant to sort out how a company should write off revenue it will never collect as a result of nonpayment for health services. The EITF said it heard concerns that some companies recognize revenue for all services provided without assessing whether they will actually collect. The guidance says some health care entities need to change their accounting to better reflect bad debt.

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