The Canadian real estate industry

The International Financial Reporting Standards (IFRS) are bringing a flurry of changes to the way the real estate sector does business in Canada. The transition means more than just a shift in your accounting practices; it means preparing every level of your company for significant change with potentially complex implications.

For public real estate companies in Canada, the move to IFRS will impact financial systems, day-to-day operations and financial reporting, which will alter the way that stakeholders and analysts judge the performance and prospects of these companies. Failure to properly anticipate and prepare for IFRS could lead to accounting errors and, in turn, regulatory fines and a loss of credibility. Professional conversion assistance from an experienced advisor can make all the difference.

Key differences between Canadian GAAP and IFRS

Investment Properties: Under IAS 40, the value of investment property is initially measured at cost, but after the initial changeover it can be measured either using a fair value or historical cost model. Our experience in Europe tells us that the fair value approach is generally used as it provides more useful performance information. This means that both the value of the properties and the equity held in them will change with the market, which could have an impact on the way that real estate organizations are measured by the markets.

Assets Held for Sale and Discounted Operations: IFRS 5 has a more restrictive definition of what constitutes a discontinued operation than current Canadian GAAP, which means that real estate companies will likely have fewer instances where they must present individual or held-for-sale properties as discontinued operations.

Joint Ventures: Under IFRS, joint ventures are currently permitted to be accounted for using either proportionate consolidation or equity accounting. However, there is currently an IASB working group reviewing the joint venture accounting standard and attempting to align IFRS with US GAAP, which prohibits the proportionate consolidation method for incorporated entities. Investments in co-ownerships or undivided interests in properties will still be proportionately consolidated.

Impairment Testing: IFRS requires that impairment testing be performed at the Cash Generating Unit level, which may be more detailed than current Canadian GAAP requirements. Further, impairment is tested using discounted cash flows, which differs from the present Canadian requirement of using undiscounted cash flows.

How we can help

Experience is essential to developing a successful strategy for transition. PricewaterhouseCoopers is a leading advisor for IFRS conversions in Europe, and we can leverage that experience to help you make a smooth transition. We have real estate specialists who understand the unique concerns of the industry and more than 100 Canadian staff with direct experience in IFRS conversions overseas and in Canada.

Contact one of our IFRS professionals today to see how we can help your real estate company begin the conversion process.

Download a quick reference guide to some of the key IFRS accounting issues facing the Canadian real estate industry.

Putting IFRS in Motion: The impact of International Financial Reporting Standards (IFRS) on the Canadian real estate sector (351KB) Download the full PDF report.