Business property called to account under new financial rules

All European stock exchange listed companies must now adopt International Financial Reporting Standards (IFRS). The aim of IFRS is to make comparison of companies across national boundaries easier. This will fundamentally change the way property assets are reported, and may even influence how the value of a listed company is perceived.

In particular, IFRS gives the option of reporting property at ífair valueí (current values). This is a radical departure from íhistorical costí accounting, common in many countries. The shift to fair value accounting has major implications for published net assets, earnings and return on capital. Property commitments will now have a bigger impact on corporate balance sheets.

Accountants, finance directors, property managers and investors all need to get to grips with the new standards. To help them, RICS has published a guide to property under IFRS.

Currently every country has its own accounting regime. In the UK, the use of fair value is already commonplace but French businesses have no previous requirement to update valuations. German standards do not allow revaluation and in Spain the new rules will come as a culture shock to a business community firmly rooted in the historical cost tradition.

RICS valuation spokesman Chris Thorne, says:

Cross border occupation and investment is now commonplace and the introduction of IFRS will help to build transparency and consistency. We welcome the shift towards fair value accounting which conveys far more useful information that outdated cost figures.

However, the new accounting standards have an increased dependence on high quality valuations. There will be a demand for properly qualified and regulated professionals to undertake this work, if fair values are to be relied upon.