International Accounting Standards paradigm shift for corporate by liaoqinmei

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									Journal of Corporate Real Estate Volume 4 Number 1




                                       International Accounting Standards: A
                                       paradigm shift for corporate real estate?

                                       Timothy Eccles* and Andrew Holt
                                       Received (in revised form): 1st October, 2001
                                       *School of Surveying, Kingston University, Knights Park, Kingston upon Thames,
                                       Surrey KT1 2QJ, UK; Tel: 44 (0)20 8547 2000; Fax: 44 (0)20 8547 7087;
                                       e-mail: t.eccles@Kingston.ac.uk




                                       Timothy Eccles is a senior lecturer in the         Others are encouraged to do so, with an
                                       School of Surveying at Kingston University, UK.    implication that this will become mandatory
                                       He co-wrote with Andrew Holt the earlier papers    at some future date. In earlier papers,3 the
                                       in this journal ‘Accounting for Property in the    authors examined the recent changes within
                                       UK: The Legal and Professional Framework’ and      property accounting and the role played by
                                       ‘Accounting for Leasehold Property in the UK: A    property professionals within that process. This
                                       Triumph of Substance over Form?’1 He is also       paper examines the requirements of interna-
                                       a co-author of the forthcoming ‘Property and       tional standards within the context of the
                                       Construction Accounting’ and of the in-print       British position as explained earlier. Differences
                                       ‘Property and Construction Economics’.2 He is      are noted, the contrasting debates analysed
                                       editor of the journal Environments by Design.      and suggestions offered for corporate real es-
                                                                                          tate professionals to consider. Secondly, unlike
                                       Andrew Holt is a senior lecturer in the School     British Accounting Standards, IAS do not
                                       of Accounting and Finance at Kingston Univer-      recognise property professionals or any profes-
                                       sity, UK. He co-wrote with Timothy Eccles the      sional organisation representing them, such as
                                       earlier papers in this journal ‘Accounting for     the International Valuation Standards Com-
                                       Property in the UK: The Legal and Professional     mittee (IVSC), and none of their regula-
                                       Framework’ and ‘Accounting for Leasehold           tions are represented within the standards.
                                       Property in the UK: A Triumph of Substance         This situation is examined, and commentary
                                       over Form?’ He is co-author of the forthcoming     provided upon the repercussions and possible
                                       ‘Property and Construction Accounting’.            solutions.

                                                                                          Keywords: accounting, international ac-
                                       ABSTRACT                                           counting standards, property, value
                                       This paper is concerned with International
                                       Accounting Standards (IAS) and their impact
                                       upon existing accounting practices for property    INTRODUCTION
                                       within the UK. It also anticipates the wider       The authors have offered previous
                                       international and European demands for IAS.        examination4 of the requirements of
                                       There are two primary points to consider. First,   British accounting regulations and the
                                       the European Union (EU) has stated that it         extent to which they recognise, disregard
                                       expects publicly listed companies quoted on the    and generally interact with valuation
    Journal of Corporate Real Estate
    Vol. 4 No. 1, 2001, pp. 66–82.     stock exchanges of EU member states to adopt       standards and the needs of corporate real
      Henry Stewart Publications,
    1463–001X                          International Accounting Standards by 2005.        estate. International Accounting Standards




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                                                                                               Eccles and Holt




(IAS) are rather different, however, in that   Accounting Standards Committee (IASC)
they do not recognise traditional valuation    in 1973 through an agreement by
concepts or the role of the valuation          professional accountancy bodies from
profession, even in the form of the            Australia, Canada, France, Germany,
International Valuation Standards Com-         Japan, Mexico, the Netherlands, the
mittee (IVSC). IAS can be seen purely as       United Kingdom and Ireland and the
the work of accountants and those who          United States of America. Between 1983
operate within that professional field.5        and 2001 IASC’s members included all
The rationale behind this concerns the         the professional accountancy bodies that
purpose of IAS, which are developed            were members of the powerful Interna-
from a need to create a framework to           tional Federation of Accountants. On 1st
enable global investment on terms of           April 2001, a new body called The
parity. Free movement of capital, the          International Accounting Standards Board
work of international banks and the            (IASB) was formed to undertake the
World Bank, and international trade are        standard-setting responsibilities of the
enabled by common development of               IASC. At the time of this change, the
terms and uniform principles of financial       IASB approved a resolution to adopt the
reporting for the stewardship of invest-       existing IAS and interpretations already
ments. International standards are impera-     issued by the IASC. Any future interna-
tive to this and lead those who wish to        tional standards issued by the IASB will
engender such frameworks. Stewardship is       be called International Financial Report-
thus a primary motivation behind IAS. Of       ing Standards (IFRS). The IASB, like its
particular interest to European audiences      predecessor, is an independent body
is the acknowledgement of this fact by the     whose goal is to provide internationally
EU and its decision to adopt IAS by 2005       recognised and approved accounting
for publicly quoted companies.                 guidance and standards.
                                                  In terms of the UK accounting stan-
                                               dard-setting arena, the newly formed
THE EMERGENCE OF                               IASB has a liaison member resident in the
INTERNATIONAL ACCOUNTING                       UK and the Board itself has offices in
STANDARDS                                      London. The IASB constitution envisages
International Accounting Standards (IAS)       a ‘partnership’ between IASB and national
have emerged from a relatively long and        standard setters as they work together
very political gestation process. Originally   to achieve the convergence and com-
designed as a way for countries with           parability of accounting standards in the
ill-developed systems of national GAAP         global marketplace. The links between
to adopt an internationally verified system     the UK’s Accounting Standards Board
of accounting, IAS have become much            (ASB) and the IASB are especially strong,
more. IAS rules are no longer derived          as the former chairman of the ASB, Sir
exclusively from the Anglo-Saxon ac-           David Tweedie, is the current head of the
counting rules of the US and UK, but           IASB.6
have become distinct entities with their          For a considerable time now, the
own conceptual framework.                      IASC/IASB and its standards have
   The International Accounting Stan-          coexisted alongside national standard setters
dards Board (IASB) is the body that            and national standards. However, this
oversees and controls the IAS project. It      system of coexistence is about to change
was originally formed as the International     within Europe, following recent moves by




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International Accounting Standards: A paradigm shift for corporate real estate?




                             the EU to use the IASB’s standards as the            and where consensus has been achieved.
                             means to converge EU accounting practice.            Of course, the decision to standardise
                             It is to this fundamental change that the            accounting procedures has created a
                             paper will now turn.                                 degree of nationalistic protection of
                                                                                  individual approaches, which is why IAS
                                                                                  were adopted as the basis for develop-
                             EUROPEAN UNION AND                                   ment. Being international, they were seen
                             INTERNATIONAL ACCOUNTING                             as less biased and avoided any danger of
                             STANDARDS                                            a move towards Americanisation via the
                             The reason behind the adoption of IAS by             use of US GAAP. Adoption also provides
                             the EU is undoubtedly linked to the                  the EU with a powerful voice in
                             introduction of the Euro and moves                   the creation of IAS and the legislative
                             towards a single European economy                    ability to implement and enforce the
                             within the broadly recognised concept of             regulations.9
                             the globalisation of capital markets and
                             stock exchanges. At the same time, there             European Union enforcement
                             are concerns within certain member states            It is proposed that IAS will be a require-
                             that have led to a determination to                  ment for consolidated accounts of all EU
                             standardise reporting standards. For ex-             listed companies. It will be optional (at
                             ample, both Germany and Italy face                   this stage) for the consolidated accounts
                             problems related to shifting demographic             of unlisted companies and individual ac-
                             structures and thereby implications upon             counts. Translation into the 11 official
                             traditional pension funding arrangements.            EU languages is also problematic at this
                             Simply, increased personal provision via             time, because of either poor translation
                             individual investment is necessary for the           of some of the terminology in existing
                             future, and this needs to be encouraged              foreign-language IAS documents or the
                             and protected by creating stewardship                impossibility of precisely defining cer-
                             documents for such investments that are              tain terms within alternative socio-politi-
                             standardised and utilise universally ac-             cal legal frameworks.
                             cepted principles. The currently ad hoc                 The endorsement infrastructure will re-
                             nature of reporting requirements within              volve around two main bodies:
                             individual member states includes national
                             Generally Accepted Accounting Practice               • EU Accounting Regulatory Committee
                             (GAAP), US GAAP and IAS.7 This is not                  (with co-decision power of the
                             adequate for the perceived shift towards               Parliament)10
                             supra-national investment within the EU.             • European Financial Reporting Advisory
                             Thus, the EU regards IAS as the                        Group (EFRAG), a private body in-
                             preferable means of achieving com-                     volved in debate with the International
                             parability and competition, improved trust             Accounting Standards Board.11
                             and investor protection and of allowing
                             access to the EU from elsewhere and to               Accounting harmonisation revisited?
                             elsewhere by EU-based companies. This                This movement to converge EU account-
                             has been a long process8 by the EU in                ing practice using IAS as the conceptual
                             order to obtain agreement within its                 framework is not the first attempt to
                             member states, and as will be seen causes            harmonise European accounting. Im-
                             some concerns within UK practice, as it              mediately before the issuance of the EU
                             revisits topics already debated thoroughly           Fourth Directive in 1980, an unsuccessful




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                                                                                              Eccles and Holt




attempt was made to harmonise EU               (about 6,500 companies) use their na-
accounting practice. At that time, the         tional GAAP.14 Even the 275 European
‘quick fix’ solution as to what type of         companies that are actually using IAS do
accounting showed a true and fair view         not always comply with the full require-
was to agree a system of ‘mutual               ments of IAS, choosing instead to apply
recognition’ between accounts prepared         a limited form of IAS ‘lite’ that should
under each member state’s generally            not technically be acceptable to com-
accepted accounting principles (GAAP).         pany auditors.15 Such evidence suggests
Under this system, adherence to showing        that the limited use of IAS by listed
a ‘true and fair’ view in the accounts         companies is certainly not just an UK
could be achieved not only by ensuring         phenomenon.
that the primary accounting statements            The UK situation is not all that surpris-
were themselves true and fair (the             ing, as there is currently little compulsion
‘Anglo-Saxon’ approach) but that truth         for UK companies to go to the expense
and fairness could be achieved by way of       of providing a dual set of accounts ac-
footnotes which revealed to what extent        cording to both UK GAAP and IAS
the primary statements were not true and       GAAP. In fact, the only UK companies
fair (the ‘Germanic’ solution). It is beyond   preparing ‘dual’ accounts are those that
the scope of this paper to revisit the         are also listed on the US stock market, in
whole range of political and economic          order to comply with the US Securities
issues involved in the ‘mutual recognition’    and Exchange Commission’s (SEC) listing
solution, but it can at least partially        requirements. In these cases, US and UK
explain the use of IAS as the starting point   GAAP are used and not IAS GAAP. Thus
for the current EU 2005 programme of           it seems that increased use of IAS by UK
accounting convergence. By utilising an        companies will only be brought about
established and non-European accounting        through the EU convergence effort. In
standards framework, namely that of the        order to examine this more fully, the
IASB, the EU Commission avoids being           following subsection describes in detail
accused of promoting the accounting            the present standing of IAS in terms of the
framework of one member state over that        current UK accounting, regulatory and
of another.13                                  reporting environment.

                                               UK accounting standards,
THE UK AND INTERNATIONAL                       International Standards and the law
ACCOUNTING STANDARDS                           The Companies Act 1985 currently re-
                                               quires all UK companies to produce ac-
Present use of International                   counts that show a ‘true and fair’ view. As
Standards by UK companies                      Eccles and Holt (2001)16 explain, the legal
There is currently very little evidence of     interpretation of this is that accounts must
IAS use by UK firms. A survey by                comply with UK17 generally accepted
Cairns (2000)13 concluded that their use       accounting principles (GAAP) and stan-
is virtually non-existent for UK listed        dards in order to show a ‘true and fair’
firms. Even if one goes beyond the              view. However, when it comes to in-
UK and considers all European listed           ternational accounting standards, there is
companies, only 275 prepare their con-         currently no legal compulsion for UK
solidated financial statements under IAS,       companies to produce accounts that com-
300 under US GAAP, and the remainder           ply with them. Thus, it is entirely at the




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International Accounting Standards: A paradigm shift for corporate real estate?




                             discretion of an UK company if it wishes             Appreciating the differences between
                             to prepare annual accounts or an account-            IAS and UK GAAP
                             ing reconciliation compliant with relevant           For the property manager working for a
                             IAS.                                                 UK listed company, it is vitally impor-
                                Despite this lack of UK legal compul-             tant to recognise the potential impact
                             sion to use IAS, since the creation of the           on reported performance of having to
                             ASB every newly issued UK financial                   comply with IAS by 2005. Obviously,
                             reporting standard (FRS) has included                the switch from pure UK GAAP to
                             an appendix that outlines its level of               IAS will not affect all companies equally.
                             compliance with the alternative rules                As Eccles and Holt19 point out, com-
                             provided by relevant IAS. Such appen-                panies with different exposures to wholly
                             dices aim to outline differences in ac-              owned properties, leasehold properties,
                             counting approaches, so that accounting              investment properties and construction
                             reports prepared under either basis can              contracts may well have their reported
                             be reconciled and understood by UK                   performance affected to differing degrees.
                             accountants.                                         While it should be pointed out that
                                In earlier papers in this series18 the            such accounting changes do not affect
                             authors outlined in detail the ASB ap-               the underlying cash flow that a firm is
                             proach to issuing UK accounting rules                producing, they can mislead the unin-
                             and standards. The IASB framework is                 formed into believing that the firm’s per-
                             very similar, with the main guidance on              formance has either improved or declined.
                             an accounting issue being contained in               It is perhaps too early to ascertain the true
                             the relevant IAS. However, in addi-                  impact of the move from UK GAAP to
                             tion to IAS, the Standing Interpreta-                IAS, especially as the EU ‘ratified version’
                             tions Committee (SIC) of the IASB                    of IAS has yet to be finalised. Despite this,
                             occasionally issues additional interpreta-           however, the following section will aim
                             tions on certain issues called SICs. The             to outline some of the main areas of
                             interpretations issued by the SIC are                difference between IAS and UK GAAP
                             approved by the IASB and form part                   that a property manager should at least
                             of its authoritative literature. Therefore,          consider and appreciate.
                             financial statements should not be des-
                             cribed as complying with IAS unless they
                             comply with each applicable standard and             COMPARISON OF IAS AND UK GAAP
                             each applicable interpretation issued by             TREATMENT OF PROPERTY ISSUES
                             the SIC.                                             The main areas of interest when compar-
                                                                                  ing UK and IAS GAAP treatments of
                             UK and International Accounting                      property issues are as follows.
                             Standards relevant to property
                             Table 1 provides a comparative summary of            Accounting issue: Benchmark
                             which IAS and UK standards contain the               treatments and allowable options
                             relevant accounting rules and guidance for           Before the paper compares UK GAAP
                             the major types of property accounting               and IAS GAAP in any detail it is impor-
                             issues. As the table clearly shows, the              tant to recognise one important difference
                             IASB and ASB have taken slightly different           between ASB standards and IASB stan-
                             routes in developing their own accounting            dards in the way they describe alternative
                             frameworks and rules systems to deal with            treatment options available in certain stan-
                             property issues.                                     dards.




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                                                                                                     Eccles and Holt




Table 1: IAS and UK GAAP relevant to property issues

Accounting issue              Existing UK guidance               Current IAS guidance

Wholly Owned Property and     FRS 15 Tangible Fixed Assets       IAS 16 Accounting for Property,
other Tangible Fixed Assets                                      Plant and Equipment
                                                                 IAS 23 Borrowing Costs
                                                                 SIC 2 Consistency —
                                                                 Capitalisation of Borrowing Costs
                                                                 SIC 14 Property, Plant and
                                                                 Equipment — Compensation for
                                                                 Impairment or Loss of Items
                                                                 SIC 23 Property, Plant and
                                                                 Equipment — Major Inspection
                                                                 Costs

Impairment of Assets          FRS 11 Impairment of Assets        IAS 36 Impairment of Assets
                              and Goodwill

Investment Property           SSAP 19 Investment Properties      IAS 40 Investment Properties

Leasehold Property            SSAP 21 Leases and Hire            IAS 17 Accounting for Leases
                              Purchase Contracts
                              FRS 5 Reporting the Substance      SIC 15 Operating Leases —
                              of Transactions                    Incentives
                                                                 SIC D27 Transactions in the
                                                                 Legal Form of a Lease

Revenue Recognition           ASB Discussion Paper ‘Revenue      IAS 18 Revenue
                              Recognition’ published 5 July
                              2001
                              SSAP 2 & the new FRS 18
                              Accounting Policies

Stocks and Long-Term          SSAP 9 Stocks and Work in          IAS 2 Inventories
Construction Contracts        Progress                           IAS 11 Construction Contracts
                                                                 SIC 1 Consistency — Different
                                                                 Cost Formulas for Inventories




   In some cases where an IASB Standard                should use the term ‘‘benchmark’’
permits two accounting treatments for                  instead of the term ‘‘preferred’’ in those
like transactions and events, one treatment            few cases where it continues to allow
is designated as the ‘benchmark’ treatment             a choice of accounting treatment for
and the other as the ‘allowed alternative’             like transactions and events. The term
treatment. The IASC’s 1990 Statement of                ‘‘benchmark’’ more closely reflects the
Intent on the Comparability of Financial               Board’s intention of identifying a point
Statements20 gave the following explana-               of reference when making its choice
tion:                                                  between alternatives.’

   ‘The Board has concluded that it                  Seen in this light, the term ‘benchmark’




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International Accounting Standards: A paradigm shift for corporate real estate?




                             is not meant to mean ‘preferred’ by the              depreciation or at valuation. However, in
                             IASB, although it could be claimed to                contrast to IAS 16, FRS 15 does not
                             represent this. The benchmark treatment              offer a benchmark treatment, preferring to
                             is thought to represent the treatment                leave the decision to the individual ac-
                             adopted by the majority of international             countant.
                             companies and, through its use, to                      The main difference between FRS 15
                             guarantee enhanced comparability be-                 and IAS 16 arises on how to revalue assets
                             tween the accounts of international                  and is concerned with the terminology
                             companies. In April 2001, the IASB                   and methodology used in each standard.
                             announced its intention to commence a                The valuation guidance contained in FRS
                             project to ‘improve’ the existing IASC               15 and IAS 16 are very different. As the
                             Standards. It is likely that this programme          authors’ earlier paper showed, FRS 15
                             of improvements will include an                      uses the ‘value to the business’ model and
                             elimination of many, if not all, alternatives        requires valuation at existing use, re-
                             offered in the current standards.                    placement cost or open market value,
                                In contrast to the IASB use of                    depending on the property.22 In order to
                             ‘benchmark’ treatments, ASB standards do             explain these concepts the FRS makes
                             not use such a deterministic terminology.            direct reference to Royal Institution of
                             Where an ASB standard allows alternative             Chartered Surveyors’ (RICS) definitions.
                             options, it is left to the discretion of the         Before IAS 16 was revised in 1998, it also
                             individual to determine the appropriate              referred to valuation at existing use and
                             treatment that guarantees a true and fair            would have been consistent with FRS 15
                             view of the transaction.21                           and RICS definitions. However, the post-
                                                                                  1998 version of IAS 16 no longer refers
                             Accounting issue: Valuation of                       to existing use, but requires tangible fixed
                             tangible fixed assets                                 assets to be valued only at ‘fair value’,
                             The requirements of FRS 15 in the                    which is defined as:
                             valuation of tangible fixed assets lead to
                             compliance with IAS 16 and IAS 23 in                   ‘the amount for which an asset could
                             most respects. This is not surprising, given           be exchanged between knowledgeable,
                             the close work between the ASB and the                 willing parties in an arm’s length trans-
                             IASC during the development of FRS 15.                 action.’23
                             Also, as was indicated earlier in this paper,
                             more recent ASB standards include an                 IAS 16 states that the fair value of land
                             appendix explaining compliance with the              and buildings, plant and equipment is
                             relevant IASB standard. However, there               usually their market value, but where
                             are a number of differences between FRS              there is no evidence of market value
                             15 and IAS 16.                                       depreciated replacement cost should be
                                Under IAS 16, subsequent to initial               used instead. This is perhaps the biggest
                             recognition as an asset, the benchmark               problem with IAS 16. It does not give
                             treatment for an item of property, plant or          the same clear and precise guidance on
                             equipment is to carry it at its historic cost        valuation as does FRS 15. FRS 15
                             less any accumulated depreciation and any            was introduced in an effort to enhance
                             impairment losses. The allowable alterna-            the conformity and comparability of as-
                             tive treatment is to show the asset at its           set valuation practice in the UK. As
                             ‘fair value’. FRS 15 also allows the option          it presently stands, IAS 16 seems to
                             of keeping assets either at historic cost less       be a step backwards in this regard.




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                                                                                              Eccles and Holt




As examples of this, IAS 16 is com-            requirement. Furthermore, IAS 16 per-
pletely silent in respect of whether valua-    mits only those losses that reverse revalua-
tions should be on an existing use basis       tion gains that were previously recognised
and whether material direct acquisition        in the statement of total recognised gains
or selling costs should be added or            and losses (STRGL) to be recognised in
deducted. Furthermore, when it comes           that statement. In contrast, FRS 15 goes
to the issue of how frequently assets need     further to require other losses to be
to be revalued, all IAS 16 states in           recognised in the STRGL to the extent
paragraph 32 is that it:                       that the asset’s recoverable amount is
                                               greater than its revalued amount. This
  ‘depends upon the movements in the           treatment best fits the idea that such
  fair value of the items of property, plant   losses, which have been demonstrated not
  and equipment being revalued.’               to be impairments, are in the nature of
                                               losses caused by a general fall in prices.
Thus the decision as to the frequency             Another minor issue is concerning the
of revaluations is effectively left to the     depreciation of tangible fixed assets. Both
discretion of the individual accountant        IAS 16 and FRS 15 state that subsequent
applying IAS 16. This stands in direct         expenditure on an asset does not negate
contrast to FRS 15, which gives clear and      the need for depreciation. However, FRS
precise guidance on the frequency of asset     15 also requires impairment reviews at
revaluations. Finally, IAS 16 makes no         the end of each reporting period where
direct reference to International Valuation    depreciation is not charged, while IAS 16
Standard (IVS) concepts or methodology,        does not.
except to say that ‘fair value’ is deter-         The final difference between IAS 16
mined by appraisal normally undertaken         and FRS 15 concerns the required dis-
by professionally qualified valuers. Once       closure requirements. IAS 16 requires ad-
again, this stands in direct contrast to use   ditional disclosures about property, plant
of RICS definitions by FRS 15 and to            and equipment pledged as security for
the way the FRS clearly describes who          liabilities; the amount of expenditure on
should conduct asset valuations and re-        account of assets under construction; the
quires details of precisely who has valued     amount of commitments for the acquisi-
them.                                          tion of tangible fixed assets; and the
                                               revaluation surplus for each class of asset.
Accounting issue: Other issues                 However, even though FRS 15 does not
concerning tangible fixed assets                also require such disclosures, they are
Apart from the problems over valuation         a requirement of the Companies Act
guidance, the remaining differences be-        1985.24 Despite this, there are two dis-
tween FRS 15 and IAS 16 and 23 are             closures that IAS 16 requires that are not
relatively minor. The main difference          required of a UK listed company, either
concerns the treatment of revaluation          by FRS 15 or the Companies Act 1985.
gains and losses. In order to comply with      These are a requirement to disclose for
FRS 11 Impairment of Fixed Assets and          each class of property, plant or equipment
Goodwill, FRS 15 requires revaluation          the measurement bases used for determin-
losses that are clearly caused by the          ing the gross carrying amount, and the
consumption of economic benefits to be          nature of any indices used to determine
recognised in the profit and loss account.      replacement cost.
IAS 16 does not have such a similar               In summary, then, it appears that there




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International Accounting Standards: A paradigm shift for corporate real estate?




                             needs to be some revision to IAS 16 in               First, the FRS requires impairments of
                             order to resolve the differences in the              revalued assets that are clearly caused by
                             approach to the determination of the fair            the consumption of economic benefits
                             values of property, plant and equipment.             to be recognised in the profit and loss
                             This is clearly an important area where              account. In contrast, IAS 16 requires
                             corporate property advisers need to ensure           such impairments to be recognised in the
                             that future IASB developments are in-                profit and loss account only to the extent
                             formed of the particular elements already            that the loss exceeds the balance on the
                             agreed to by the UK national standard                revaluation reserve relating to the assets in
                             setters, the ASB, and which relied upon              question. Secondly, FRS 11 requires the
                             RICS definitions.                                     accuracy of previous estimates of value in
                                                                                  use to be monitored for five years follow-
                             Accounting issue: The capitalisation                 ing an impairment review. Any impair-
                             of borrowing costs                                   ment that should have been recognised at
                             The treatment of borrowing costs in FRS              the time must be recognised in the cur-
                             15 is consistent with IAS 23. How-                   rent period unless it has since reversed, in
                             ever, in IAS 23 it is interesting that the           which case its non-recognition in past
                             benchmark treatment is to expense bor-               years should be disclosed. IAS 36 does not
                             rowing costs in the profit and loss account           include such requirements. Finally, IAS 36
                             when they occur. Although an allowed                 requires amounts recognised as impair-
                             alternative treatment grants the option to           ment losses and reversals of impairment
                             capitalise in a very similar manner to that          losses to be disclosed in more detail than
                             allowed by FRS 15, this is very informa-             does FRS 11.
                             tive as to the IASB’s thoughts on the
                             matter. In contrast, FRS 15 gives no                 Accounting issue: Leasehold
                             guidance on the appropriate treatment                investment properties
                             except that the chosen treatment must be             This issue is potentially the most politi-
                             applied consistently across a class of assets        cally sensitive of all accounting issues,
                             and must show a true and fair view.                  when one compares IAS 40 Investment
                                                                                  Property with SSAP 19 Accounting for
                             Accounting issue: Impairment of                      Investment Property. Under the terms of
                             assets                                               IAS 40, a lessee cannot treat its inter-
                             The basic approach in IAS 36 Impairment              est in property held under an operat-
                             of Assets is similar to that of FRS 11               ing lease as investment property, even if
                             Impairment of Fixed Assets and Goodwill.             the lessee acquired its interest in ex-
                             Impairment is measured by comparing the              change for a large up-front payment or
                             carrying value of fixed assets and good-              the lease has a very long term. Instead,
                             will with the higher of net selling price            the cost of such properties will have to
                             (equivalent to net realisable value) and             be amortised in accordance with IAS
                             value in use. Value in use is calculated by          17 Leases. This exclusion of leasehold
                             discounting the cash flows expected to be             property from the definition of invest-
                             generated from the assets.                           ment property under IAS 40 stands in
                               The detailed requirements of IAS 36                direct contrast to SSAP 19. Under SSAP
                             are also very similar to those in FRS 11.            19, leasehold property qualifies as invest-
                             They differ in a number of areas, al-                ment property, and should be valued at
                             though most are not directly relevant to             open market value. However, SSAP 19
                             property assets and will be ignored here.            does state that such properties should be




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                                                                                                Eccles and Holt




depreciated over the period when the            a short-term market downturn, it would
unexpired term is 20 years or less.             seriously depress its reported earnings in
   If IAS 40 is not changed, UK                 its profit and loss account. Alternatively, in
companies holding substantial portfolios        periods when investment property values
of long-leasehold investment properties         are increasing, any gain will be reported
would face substantial economic conse-          in the main profit and loss account, even
quences in their accounting records. It         though the gain itself is an unrealised gain,
seems that the IASB will not change its         which may or may not ever be
stance until it reviews its standard on lease   realised.26
accounting. At the moment, the IASB                This debate about whether such gains
wants to appear consistent in its treatment     or losses should be taken to yearly income
of operating leases, to the detriment of        or taken to equity reserves is an im-
its treatment of leasehold investment           mensely political area both at UK and
property.                                       international levels. The ASB is currently
   The treatment of leasehold property          at the exposure draft level in its plans to
under IAS 40 is inconsistent with the           revise the main income statement and
treatment of leasehold property under IAS       STGRL. It would not be a surprise if the
16. It is absurd that a leasehold interest      IASB takes action in the area also. At the
can be treated as property under one IAS        time of the Exposure Draft 64 (ED 64)
but not another — and equally absurd            discussions during the development of
that the interest can be revalued under         IAS 40, a number of respondents, espe-
one IAS and not another. It seems that the      cially from the UK, argued against charg-
IASB must act on this, or at least that the     ing non-permanent gains and losses on
EU must adopt a different version of both       investment property to income. Such dis-
standards. Clearly, this is an area in which    agreements and discussions go beyond the
corporate real estate managers need to          accounting for investment properties, and
ensure their opinions are heard.                to the heart of questioning what the profit
                                                and loss account statement should show,
Accounting issue: Gain or loss on               and the basis on which profit should be
revaluation of investment properties            calculated.
Another     very     important    negative
economic consequence of adopting IAS            Accounting issue: Cost or fair value
40 Investment Properties concerns the           valuation of investment properties
treatment of gains or losses on the change      The final area of interest when
in market value or fair value in each           one compares accounting for invest-
standard. As the authors discussed              ment properties under ASB and IASB
elsewhere,25 SSAP 19 allows the gain or         frameworks concerns allowable treat-
loss on revaluation to be taken to the          ments. SSAP 19 is clear in recommending
STRGL rather than the profit and loss for        that property qualifying as investment
the period, unless the loss is expected to      property should be valued at open market
be permanent. However, IAS 40 requires          value. No other treatment is allowable.
the gain or loss to be taken to the profit       However, IAS 40 allows investment
and loss account rather than to equity          property to be valued at either cost or fair
reserves. For example, if a company             value, but one method must be applied
experiences a considerable amount of            consistently across all such property held.
short-term losses in the market value of its    None of the allowable options in IAS 40
investment property, due for example to         are described as ‘benchmark’ treatments,




                                                                                                       Page 75
International Accounting Standards: A paradigm shift for corporate real estate?




                             which appears to support the idea that the           propriate revenue recognition, both the
                             IASB is undecided on the model to                    ASB and the Audit Practices Board (APB)
                             follow. During the time of ED 64, the                have issued discussion papers on the issue.
                             Board was faced with views that certain              There is at present no accounting standard
                             property markets were not sufficiently                in the UK that contains specific require-
                             mature for a fair value model to work                ments for how revenue is to be defined
                             satisfactorily. Furthermore, other views             and recognised. Faced with difficult ques-
                             believed that it is impossible to create a           tions over revenue recognition, different
                             rigorous definition of investment property            companies have found different answers,
                             and that this made it impracticable to               and practices have developed that are in
                             require a fair value model at the current            some respects inconsistent both between
                             time. For these reasons, in IAS 40 the               and within industries. For their guidance,
                             IASC believed it impossible to require a             UK accountants have to rely on their
                             fair value model for investment property.            own judgment, the fundamental account-
                             However, they also believed it desirable             ing principles contained in the earlier
                             to permit a fair value model:                        SSAP 2 and the newly issued FRS 18
                                                                                  Accounting Policies, and the ASB’s State-
                                ‘This evolutionary step forward will              ment of Principles.
                                allow preparers and users to gain                    Despite the UK position, there is an
                                greater experience working with a fair            existing International Accounting Stan-
                                value model and will allow time for               dard that deals with revenue issues, IAS
                                certain property markets to achieve               18 Revenue. IAS 18 has even been used
                                greater maturity.’27                              in the UK as a source of guidance.
                                                                                  However, it is not always clear how its
                             This statement clearly illustrates one of            application rules are derived from under-
                             the limiting factors that the international          lying principles. The IASB is expected to
                             accounting standard programme faces. It              assign revenue recognition a high priority
                             has to cater for all market conditions               within the Conceptual Framework sec-
                             throughout the globe, while the ASB                  tion of its forthcoming agenda.
                             is setting standards for the mature UK                  The ASB has stated that it aims to
                             market. As such, ASB standards can be                develop a robust framework, in consulta-
                             more proactive than IASB standards, and              tion with the IASB and other standard
                             by being so, they are more suited to the             setters, that can ultimately be the basis
                             UK accounting arena. It remains to be                for an accounting standard dealing with
                             seen if the IASB eventually withdraws                general revenue principles. National stan-
                             the cost model option for investment                 dard setters have thus already agreed to
                             property. As the matter stands, interna-             liaise with the IASB in order to develop
                             tional comparability, the aim of EU adop-            a convergent approach to revenue recog-
                             tion, will suffer.                                   nition.
                                                                                     Wilson Connolly, the UK house-
                             Accounting issue: Revenue                            builder, is a prime example of how UK
                             recognition                                          properties companies are struggling to
                             Revenue recognition in the accounts of               interpret and apply the present revenue
                             UK companies is an area that is currently            recognition rules. When declaring its
                             under review by the ASB. Following                   six-monthly results to 30th June 2001,28
                             recent criticism by both UK investors and            the company announced plans to adopt a
                             the London Stock Exchange of inap-                   more conservative accounting policy for




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                                                                                              Eccles and Holt




house sales, recognising a transaction on      only over the period of the lease term.
legal completion rather than on exchange       However, what makes matters more com-
of contracts. This change effectively          plicated is that both of these approaches
delays the recognition of revenue in the       are incompatible with the requirements in
profit and loss account and eliminates the      FRS 5 Reporting the Substance of Trans-
possibility of customers pulling out before    actions that, in a sale and repurchase
completing.                                    agreement, the sale proceeds should be
                                               recognised as a liability and no profit
Accounting issue: Lease accounting             should be recognised. As can be seen in
Apart from the issue of certain leasehold      the recent financial press, there are a
investment properties, the basic treatment     growing number of UK companies in-
of leases is very similar in SSAP 21           volved in the sale and leaseback of their
(coupled with FRS 5) and IAS 17                property; as a result, the ASB does need
(coupled with SIC 15 and SIC D27),             to act to conform the requirements of
being classified as either operating or         SSAP 21 with those in FRS 5. However,
finance. Both apply the economic owner-         even if this does happen, the new rules
ship concept, and try to avoid the             will still be different from the requirement
problem surrounding the concept of legal       of IAS 17.
ownership. However, the IAS 17 defini-             Another area of difference lies in the
tion of a finance lease does not include a      distribution of the finance income due to
rule similar to the ‘rule of 90 per cent’ of   a lessor. IAS 17 requires that a lessor
SSAP 21. IAS 17 simply states that in          should recognise finance income so as to
order for a lease to be accounted for as a     reflect a constant periodic rate of return
finance lease the present value of the          on the lessor’s net investment in the lease.
minimum lease payments must be greater         In contrast, SSAP 21 requires the use of
than, or equal to substantially all of, the    a method that reflects a constant periodic
fair value of the leased asset. The use of     rate of return on the lessor’s net cash
‘substantially all’ rather than a specific      investment in the lease (but allows the net
percentage is the IASB’s attempt at            investment method for hire purchase con-
circumventing the UK’s problem of              tracts). The reason behind the SSAP 21
having companies who deliberately con-         approach is that the net cash investment
struct the terms of the lease to prevent it    in a lease can differ substantially from the
being deemed a finance lease. Whether           net investment in a lease because of a
this is any more successful is open to         number of other cash flows which affect
question.                                      the lessor, such as advance rental payments
   Aside from the problem surrounding          and the impact of capital allowances.
lease definition, one of the biggest incom-     Although the methods used by SSAP 21
patibilities between UK and international      and IAS 17 both result in the same total
lease standards surrounds the extremely        amount of finance income being charged
topical area of sale and leaseback transac-    to the profit and loss, they do allo-
tions. SSAP 21 requires that any profit or      cate different amounts of income to each
loss on a sale and leaseback transaction       period covered by the lease. As a result,
that results in a finance lease should be       UK companies who are substantial lessors
deferred and amortised over the shorter of     may experience a short-term impact on
the lease term and the asset’s useful life.    their profitability from any requirement to
IAS 17 requires that such a profit (but not     adopt the alternative leasing rules con-
a loss) should be deferred and amortised       tained within IAS 17.




                                                                                                     Page 77
International Accounting Standards: A paradigm shift for corporate real estate?




                                Apart from the methodology dif-                   completion method for the recognition
                             ferences noted above, IAS 17 also requires           and measurement of revenues, expenses
                             lessees and lessors to provide a con-                and profits on construction contracts and
                             siderably greater number of accounting               other contracts for the rendering of
                             disclosures when compared to SSAP 21.                service. Despite this apparent similarity,
                             It is beyond the scope of this paper to              there does appear to be a crucial
                             describe all of these additional disclosures         incompatibility in implementation. SSAP
                             in detail,29 but taken together, they are            9 requires that the ‘prudently calculated
                             aimed at giving a comprehensive picture              attributable profit should be recognised’.32
                             of the current situation of each type of             SSAP 9 also places more emphasis on the
                             lease held.                                          concept of prudence when assessing the
                                As the authors indicated in a previous            stage of completion and variations on a
                             paper on lease accounting,30 there are               contract. In contrast to the use of this
                             growing calls for a reform and revision              rather vague and conservative-minded
                             to both international and UK account-                concept, the IAS standards rely instead on
                             ing rules on lease accounting. Both the              more ‘objective’ notions, such as prob-
                             IASB and ASB are giving serious thought              ability and reliable measurement, when
                             to addressing the issue of leases, and               assessing both the profit and stage of
                             one of the final acts of the international            completion on a contract.
                             G4 1 committee of national standard                     The current emphasis on prudence
                             setters before it disbanded was to issue a           within SSAP 9 seems to allow a greater
                             discussion paper arguing for a fundamental           level of discretion when accounting for
                             revision to lease accounting.31 This discus-         long-term contracts, and as a result can
                             sion paper should be the first step towards           permit a deliberate understatement of
                             a greater level of convergence between               assets and contract gains. Surprisingly, it
                             the IASB and ASB rules governing lease               also contradicts the ASB’s recently issued
                             accounting. By 2005, there may not be a              Statement of Principles,33 which sees
                             need for UK companies to adjust to the               prudence as only one of the attributes that
                             requirements of IAS 17, as there could               need to be present if financial information
                             already be an internationally agreed stan-           prepared under conditions of uncertainty
                             dard in use by the ASB.                              is to be reliable. SSAP 9 was last revised
                                                                                  in 1988, since when both the ASB and
                             Accounting issue: Long-term                          the IASB have accepted that inappropriate
                             construction contracts                               use of prudence can seriously affect the
                             Although accounting for long-term con-               quality of the information provided. As a
                             tracts is not an area relevant to property           result, SSAP 2 Disclosure of Accounting
                             per se, it is obviously an important                 Policies, the standard that contained the
                             ancillary area that should be discussed.             old view of prudence (that revenues and
                             Current UK practice is contained in SSAP             profit should not be anticipated, but
                             9 Stocks and Long-term Contracts, while              recognised only when the ultimate cash
                             the relevant international accounting rules          realisation can be assessed with ‘reasonable
                             are contained in two standards: IAS                  certainty’),34 has been withdrawn and
                             11 Construction Contracts and IAS 18                 replaced by FRS 18 Accounting Policies.
                             Revenue. Both SSAP 9 and IAS standards               Within FRS 18, the use of prudence to
                             require the immediate recognition of                 deliberately understate results is no longer
                             expected losses. The IAS and SSAP 9                  acceptable, and the concept is now seen
                             approaches also use a percentage of                  as just one aspect of the overall objective




Page 78
                                                                                               Eccles and Holt




of reliability. To summarise, SSAP 9’s         ing the treatment of property held as
current reliance on the concept of             stock for resale. Under both standards,
prudence is inconsistent with the ASB’s        the methods of calculating stock values
new approach to financial reporting and         are comparable, as is the requirement to
will cause it to be reviewed in the near       value stock at the lower of cost and net
future. It is expected that the revised        realisable value (NR    V). IAS 2 offers a
standard will adopt the more ‘objective’       benchmark treatment of assignment for
approach of IAS 11 and 18 when                 the cost of inventory by using the first-in
accounting for elements of long-term           first-out (FIFO), or weighted average cost
contracts.                                     (AVCO), formula. In addition, IAS 2
   Apart from the issue of prudence, the       provides an allowed alternative treatment
ASB and IASB standards have a num-             of assignment cost of inventory using the
ber of other differences regarding the         last-in first-out (LIFO) formula. In con-
guidance given on the balance-sheet            trast, SSAP 9 specifically states that the use
presentation and treatment of different        of LIFO is not usually appropriate be-
types of contract. SSAP 9 includes             cause it results in balance-sheet amounts
extensive guidance on the presentation of      that bear little relationship to recent cost
assets and liabilities arising from long-      levels. As a result, SSAP 9 only allows the
term contracts, such as work-in-progress,      use of either FIFO or AVCO for assigning
receivables and payables, while IAS 11         inventory cost. By allowing the use of
does not. In contrast, IAS 11 includes         LIFO, IAS 2 may allow companies to
slightly different requirements for dealing    report lower profits in times of rising
with fixed-price and cost-plus contracts,       inventory prices and vice versa. However,
while SSAP 9 does not make any such            the same formula should be applied con-
distinction. IAS 11 is also more detailed in   sistently to all similar assets and across
specifying contract revenue and costs, in      accounting periods (unless there is a valid
establishing what they should include and      reason for a change, such as a change
illustrating how they should be measured.      following a take-over), thereby reducing
Finally, IAS 11 requires extra accounting      the opportunity for creative accounting
disclosures regarding the methods used to      manipulation. Apart from the difference
determine contract revenues and stages of      over LIFO, SSAP 9 and IAS 2 are largely
completion, and also disclosure of the         consistent with each other.
contract revenue recognised as revenue in
the period.
   In summary, SSAP 9 seems to be an           INTERNATIONAL STANDARD
accounting standard that is badly due for      CONSULTATION AND FORMULATION:
revision by the ASB. It would not be a         IASB AND EFRAG
surprise if any such revision followed         As stated in the authors’ earlier
both the approach and guidance con-            papers,35 involvement with the consulta-
tained within IAS 11 and IAS 18.               tion processes that create these standards
                                               is worthwhile and results in the particular
Accounting issue: Value of property            requirements of property assets and the
held as stock for resale                       profession being considered. However,
IAS 2 Inventories (coupled with SIC 1          unlike the British standards, the IASB36
Consistency — Different cost formulas for      does not directly recognise corporate real
inventories) and SSAP 9 Stocks and Long        estate professionals, valuers or IVS.37 The
Term Contracts are the standards govern-       International Valuation Standards Com-




                                                                                                      Page 79
International Accounting Standards: A paradigm shift for corporate real estate?




                             mittee is not directly a part of the IASB.           sible to predict what financial accounting
                             Consultation responses need to be aimed              and political issues will occur before that
                             directly to the IASB.38                              time.
                                The IASB seeks to create a single                    History suggests that such attempts are
                             set of clear, technically sound and en-              doomed to failure as national issues rise
                             forceable accounting standards to ensure             against moves towards harmonisation. It is
                             transparency and comparability for in-               certainly plausible that this latest EU at-
                             ternational investors. Its aim, like that of         tempt to converge accounting practice
                             the EU described above, is primarily to              will result in the same ‘political fix’ as
                             promote rigorous application in financial             happened at the time of the Fourth Direc-
                             statements for stewardship purposes. This            tive. Only time will tell. However, should
                             is an important point, as it primarily places        the directive be successfully implemented,
                             protection of investment rather than (say)           then the EU will clearly have a very
                             value for security of bank loans as central          powerful voice within the debates con-
                             to IAS.                                              cerning the development of IAS. It is also
                                The primary EU group responsible for              very clear not only that corporate real
                             involvement with IASB consultations is               estate advisers need to be aware of these
                             European Financial Reporting Advisory                debates, but also that they must be-
                             Group (EFRAG). Its Technical Expert                  come involved in them. As with the
                             Group, established 26 June 2001, will                issues discussed with reference to British
                             advise the EU on implementation of IAS,              standards,39 IAS have the potential to
                             while an Accounting Regulatory Com-                  alter the reported performance of UK
                             mittee will operate at the political                 companies holding property assets. The
                             level under established EU rules for                 profession needs to be involved in creat-
                             decision making by regulatory com-                   ing and amending standards to reflect
                             mittees. EFRAG is aimed at unifying the              these interests, and needs to do so via the
                             EU’s considerable economic and political             auspices of the IASB.
                             power into a single voice within the
                             creation process of IAS.
                                                                                  REFERENCES
                                                                                   (1) Vol. 3, No. 2, pp. 132–149; Vol. 3, No.
                             CONCLUSIONS                                               3, pp. 232–247.
                             For the EU, adoption of IAS serves simple             (2) Both published by International
                             and useful functions. They provide a                      Thomson Business Press, London.
                             solid reporting infrastructure and clear              (3) The authors’ earlier papers within this
                             standards with few options for ‘creative                  journal were: Eccles, T. and Holt, A.
                             accounting’; are independent and will                     (2001a) ‘Accounting for Property in the
                             provide consistency across the Union;                     UK: The Legal and Professional
                             ensure high-quality audit; and are en-                    Framework’, Journal of Corporate Real
                             forced by adequate sanctions. Such is                     Estate, Vol. 3, No. 2, pp. 132–149;
                                                                                       Holt, A. and Eccles, T. (2001b)
                             the EU dream. It remains to be seen
                                                                                       ‘Accounting for Leasehold Property in
                             in exactly what form the EU’s adopted                     the UK: A Triumph of Substance over
                             IAS will operate by 2005. In accounting                   Form?’, Journal of Corporate Real Estate,
                             and financial reporting terms, 2005 is                     Vol. 3, No. 3, pp. 232–247. In
                             far into the future and much may yet                      addition, the authors have considered
                             happen within the intellectual debates                    other relevant issues within: Eccles, T.
                             that underpin the standards. It is impos-                 and Holt, A. (2001) ‘Accounting for




Page 80
                                                                                                      Eccles and Holt




      Investment Properties in the UK:             (10) While the Parliament has power, in
      Problems of Definition and                         reality it would be unusual for it to
      Implementation’, Briefings in Real Estate          ignore the Committee’s decisions upon
      Finance, Vol. 2, No. 1, pp. 122–134;              areas of intense technical detail.
      Eccles, T. and Holt, A. (2001)               (11) EFRAG is an interesting ‘grey area’
      ‘Accounting Standards and the Property            within the EU legislative framework,
      Manager’, Journal of Property                     since it is a private body and as such
      Management, Vol. 19, No. 5, pp.                   cannot be directly referred to by the
      417–432.                                          democratic structures of the EU.
(4)   See ref. 3 above.                            (12) The EU Commission also considered
(5)   To some extent this is reciprocated,              using US GAAP as the basis for EU
      since within its own work the IVSC                accounting convergence, but this could
      acknowledges only the support of                  have potentially introduced a whole new
      PricewaterhouseCoopers from the field              set of political problems, especially after
      of accounting, as evidenced by the                the EU Competition Commission
      acknowledgements in International                 recently blocked the merger of two US
      Valuation Standards Committee (2000)              aerospace companies, Honeywell and GE.
      International Valuation Standards 2000,      (13) ‘The International Accounting Standards
      IVSC, London, iii.                                Survey 2000’ appears in a number of
(6)   The International Accounting Standards            alternative formats. Most up-to-date
      Committee (IASC) became the IASB in               version and other information may be
      April 2001. As of that date, its full-time        found at www.cairns.co.uk
      standard-setting board consisted of Sir      (14) Deloitte Touche Tohmatsu (2001), IAS
      David Tweedie as chairman, five auditors,         Plus, May edition.
      three preparers of accounts, three users,    (15) For further details on the concept of IAS
      one academic and two ‘other’.                     ‘lite’, see Cairns material, ref. 13 above.
(7)   At this time there are 15 national           (16) Eccles, T. and Holt, A. (2001)
      GAAPs (based upon EU directives), US              ‘Accounting for Property in the UK’,
      GAAP is allowed in France, Germany,               ref. 3 above.
      Austria, and Belgium; and there is a         (17) Compliance solely with the relevant
      varied approach to the acceptance of              IAS would not guarantee the UK
      IAS. For example, German firms tend                legality of the accounts, as UK GAAP
      to use IAS in toto, Italian firms when             does differ from IAS GAAP in certain
      Italian GAAP does not offer advice                areas. This point will be developed later
      upon a particular issue and Dutch firms            in the paper.
      ‘where possible’ — which usually             (18) See ref. 3 above.
      equates to ‘where they wish to’.             (19) Holt, A. and Eccles, T. (2001)
(8)   The precise EU documentation on the               ‘Accounting for Leasehold Property in
      issues is as follows: Accounting                  the UK’, ref. 3 above; Eccles, T. and
      Harmonisation: A new strategy vis-a-vis `         Holt, A. (2001) ‘Accounting for
      international harmonisation 11/95;                Investment Properties in the UK’, ref.
      Financial Services Action Plan 05/99;             3 above.
      Lisbon European Council 03/00; EU            (20) IASC (1990) Statement of Intent on
      Financial Reporting Strategy 06/00;               the Comparability of Financial
      Committee of Wise Men 02/01;                      Statements, IASC, London.
      Stockholm European Council 03/01.            (21) Under both the ASB and IASB
(9)   It is worth noting that the IAS will be           frameworks the selected method of
      introduced with the most powerful                 accounting for an event or transaction
      form of EU legal instrument, that of              should be applied consistently to all like
      regulation.                                       events or transactions.




                                                                                                             Page 81
International Accounting Standards: A paradigm shift for corporate real estate?




                             (22) See FRS 15 paragraph 15.53.                     (33) ASB (1999) Statement of Principles,
                             (23) IASC (1998) IAS 16 Property, Plant                   ASB, London.
                                  and Equipment, paragraph 6, IASC,               (34) ASB (1971), SSAP 2 Disclosure of
                                  London.                                              Accounting Policies, ASB, London.
                             (24) Companies Act 1985, Schedule 4,                 (35) See ref. 3 above.
                                  paragraphs 34(2), 48(4), 50(1), 50(3)           (36) See ref. 6 above.
                                  and (50(5).                                     (37) It is true that the IVSB points to the
                             (25) See Holt and Eccles (2001) ‘Accounting               adoption of IAS 40 on a similar basis
                                  for Investment Properties in the UK’,                (and some identical wording) to its
                                  ref. 3 above.                                        own requirements as proof of its
                             (26) See the paper on investment properties,              participation in IAS creation. However,
                                  ref. 3 above, for a further discussion of            the fact that this is the sole example
                                  the distinction between realised and                 argues the opposite, and there is no
                                  unrealised gains.                                    formal recognition by the IASB. IVSC
                             (27) IASC (2001) IAS 40 Investment                        would need to trumpet this success
                                  Property, Appendix B, paragraph B48,                 much less loudly if it were playing a
                                  IASC, London.                                        major role in all relevant standards.
                             (28) ‘Wilson Connolly Takes Accounting               (38) Of course, this is not to suggest that
                                  Charge’, Financial Times, 3 July 2001, p.            consultation should not take place
                                  34.                                                  through the auspices of the IVSC.
                             (29) The additional disclosures of IAS 17 are             However, the issue to remember is that
                                  outlined in Cairns, D. and Nobes, C.                 IAS are created by the IASB, a device
                                  (2000) ‘The Convergence Handbook’,                   representing a purely accounting
                                  ASB, London, pp. 59–60.                              conceptual framework. The IVSC,
                             (30) Holt, A. and Eccles, T. (2001)                       RICS and similar bodies will consult
                                  ‘Accounting for Leasehold Property in                on their group responses to proposals.
                                  the UK’, ref. 3 above.                               However, in contrast to the Accounting
                             (31) For further details on this project please           Standards Board (ASB), there is no
                                  see the paper on lease accounting, ref.              formal recognition of valuation
                                  3 above.                                             concepts or requirement to use valuer
                             (32) ASB (1988) SSAP 9 Stocks and Long                    methodology, such as the requirement
                                  Term Contracts, ASB, London, para.                   within FRS 15, to use the Red Book.
                                  29.                                             (39) As outlined in ref. 3 above.




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