Canadian Institute of Chartered Accountants

Canadian Institute of Chartered Accountants

December 07, 2010 13:33 ET

IFRSs: What Real Estate Executives Need to Know

By Gordon Beal, CA

TORONTO, ONTARIO--(Marketwire - Dec. 7, 2010) -

Editors Note: A photo for this article will be available via Marketwire on the picture wire of The Canadian Press.

Canada's move to International Financial Reporting Standards (IFRSs) is likely to change the way the financial performance of publicly listed real estate companies is reported. Senior executives must be prepared to help investors understand whether differences they see in the financial statements reflect real changes in the business, or simply reflect the new accounting framework. 

"The biggest impact on the real estate industry is the need to determine the fair value of investment property; essentially an objective estimate of its market value," explains Teresa Neto, CA, former Vice-President of Financial Reporting for the Real Property Association of Canada. Investment property generally refers to assets held to earn rental income or for capital appreciation.

"Under IFRSs, companies have a choice," said Gordon Heard, CA, Principal Advisor of The Finance Group. "They can reflect investment property at fair value on the balance sheet and record changes in value in the income statement; or continue to reflect investment properties at cost less depreciation and disclose the fair value in their financial statement notes. Either way, the fair value of a company's investment properties will be available to all financial statement users, which is certain to affect discussions about the company's financial position and performance."

Heard says users of the financial statements may also be interested in how the company has determined the fair value of its properties. "Since IFRSs do not specifically dictate the frequency or method of valuing investment properties, companies determine the process used to establish the fair values themselves."

"Industry best practices have not yet been formally developed in Canada," says Neto. "For instance, will you rely on external or internal valuations, or a combination of both; how frequently will appraisals be done; and for how much of your portfolio?" Executives will need to be comfortable with the process their company has established to ensure values are fairly presented, and be able to communicate this information to the investment community.

Mr. Heard advises executives to be aware that acquisitions of new properties are more likely to be treated as business combinations than as asset acquisitions. He said, "This could result in having to expense transaction costs and change the way property acquisitions are reflected in the balance sheet."

The change to IFRSs is mandatory in 2011 for public companies with a December year-end and in the 2012 fiscal year for non-calendar year-ends. More information about communicating with investors and other aspects of the changeover to the new accounting standards are available online through a special website (

Note: Gordon Beal, CA, Principal, Canadian Institute of Chartered Accountants, has played a leadership role in the CA profession's program of support for the changeover to IFRSs.

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