This project was prompted by anecdotal observations of classification diversity involving distributions received by real estate investments trusts (REITs) from equity‐method investments (EMIs). The common mantra “cash is a fact” results in limited attention being given by standard‐setters and regulators to the statement of cash flows and associated classification issues. However, classification diversity, in the absence of supporting facts and circumstances, potentially undermines the comparability and representational faithfulness of financial information. The study of a larger sample of REITs affirmed the presence of classification diversity. Responses from a number of REITs to my inquiries suggest that some of their classification decisions deviate from relevant GAAP guidance. This direct input from REIT accounting and financial officers provides valuable insights that are not available from financial statements and associated disclosures. These GAAP deviations could arise for several reasons. The dominance of a non‐GAAP measure of performance in the REIT industry, funds from operations (FFO), may diminish the perceived importance of the statement of cash flows to REIT management. Moreover, classification‐related dissent by Financial Accounting Standards Board (FASB) members to SFAS No. 95, combined with commentary in the standard itself on ambiguity surrounding classification decisions, may have emboldened some firms to deviate from the classification guidance of SFAS No. 95. Finally, a combination of technical difficulty associated with implementing SFAS No. 95 and some clear misunderstandings of relevant GAAP appears to play a role. Diversity in reporting practice typically attracts the attention of the FASB. The results of this study may encourage the Board to review the classification guidance in SFAS No. 95, as well as its implementation in practice.

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