REIT - May/June 2010

ınthek[now]

BY Allen Kenney BY Allen Kenney

The Path
to
Convergence

In a world that has grown as interconnected as ours is today, the notion of “convergence” takes on great significance. Unfortunately, attempts to promote convergence—despite the best of intentions—can produce results that sounded much better in theory than they actually are in practice.

As global markets have become evermore intertwined, discrepancies in the language and rules of business between locales and industries can create frustrating obstacles to economic growth. With its recent decision to explore the issue of fair value accounting for investment property, the Financial Accounting Standards Board has taken a major step toward synching the U.S. accounting model with that of the rest of the world. The goal: Offer investors another uniform measurement metric [of comfort and certainty] when it comes to diversifying their portfolios through real estate investment around the globe.

Efforts in Washington to reform the financial system illustrate convergence’s complications. For example, one proposal on the

table could impose significant costs and requirements on businesses that use derivatives to manage risk. While the fallout from the latest financial crisis demonstrated the need to reconsider the regulation of complex financial instruments, instituting rules that hurt firms that use derivatives for legitimate business purposes could be a harmful unintended consequence.

Obviously, trying to create an outcome or singular perspective that correctly balances a range of views and practices is a difficult proposition. That goes for every scenario, from a couple friends ordering a pizza to hundreds of politicos trying to revolutionize a health care system. That doesn’t make appropriate convergence impossible, though.

REIT.com Video: To watch a video interview with NAReIT’s Senior vice President of Financial Standards, george Yungmann, discussing global final reporting convergence, visit REIT.com.