Wednesday January 2, 2013
Property developers, plantation operators raise queries
PETALING JAYA: The implementation of the International Financial Reporting Standards (IFRS) by the Malaysian Accounting Standards Board (MASB) has raised many queries and concerns over several IFRS, particulatly the ones affecting local property developers and plantation operators.
International Financial Reporting Interpretations Committee (IFRIC) Interpretation 15 has caused uneasiness among property developers, with the method of revenue recognition being the main issue. If implemented, property developers would have to recognise revenue only upon the completion and handover of the properties to the buyers.
“Arguably, property developers with multiple projects that are in different phases of completion would probably observe one-off effects in the first year of the adoption of this interpretation only,” BDO Malaysia head of audit Tang Seng Choon said.
Currently, the MASB has exempted property developers from applying IFRIC Interpretation 15 until 2014 and has raised the issue with the International Accounting Standards Board (IASB).
“We are hopeful that the uniqueness of our property sales contract would get us to the progressive revenue recognition method by then, which also explains the rationale for delaying the implementation of IFRIC Interpretation 15,” he said. The implementation of IFRIC Interpretation 15 would mean property developers effecting a change in their accounting systems. This would result in a divergence between the financial reporting and tax reporting statements, which would then result in parallel accounting systems being maintained.
Meanwhile, for plantation companies in Malaysia, IFRS 13 – the standard that deals with fair value measurement – would mean that the fair value of land for non-plantation use could be higher than the fair value of the same land in its existing use for plantation. Therefore, implementing IFRS 13 could result in zero value being attributed to the agricultural crops on the land.
Tang said companies with an accounting policy of revaluing properties could observe an increase in volatility in reported asset values due to the combination of the new fair value definition of “highest and best use” coupled with current observable trends in property prices.
BDO International global head of IFRS Andrew Buchanan said the issue had been raised with the IFRS Interpretations Committee.
He explained that the issue of non-recognition of agricultural crops on the land arose from the interaction between IFRS 13 and International Accounting Standards 41.