Fair Value Reporting for Investment Properties under US GAAP
At its July 14, 2010 meeting, the FASB tentatively decided to issue a proposed Accounting Standard Update to attempt to achieve convergence with International Accounting Standards on accounting for investment properties. However, the FASB concluded that, as opposed to the international accounting standard on investment property, IAS 40, which provides an option to account for investment property at cost or fair value, the proposed standard would require an investment property to be measured at fair value. This new guidance is partially driven by the recently issued Exposure Draft for leasing. Assuming that both standards are adopted, lessors who are in the scope of the investment property guidance would not apply the new leasing standard. This PwC paper provides an overview of IAS 40 and highlights the potential issues associated with applying an investment property standard in the United States.
Current Update:
At its November 10, 2010 Board Meeting, the FASB indicated the scope of the investment properties project has changed. The Board is currently focused on whether to limit the scope of the project to certain types of companies. The project was originally expected to apply to certain types of properties (i.e., investment properties). One alternative discussed at the Education Session was to limit the scope of the project to only those entities whose primary business is investing in real estate (i.e., real estate investment companies). However, it is not clear which entities would be considered real estate investment companies and how the evaluation would be performed. The FASB will be discussing this alternative, as well as the definition of real estate investment companies, at a later meeting. The timing of the exposure draft, which was expected to be issued in late-2010 with an abbreviated comment letter period expected to end December 15, 2010 (concurrently with that of the exposure draft on the Lease Project issued in August), has been delayed until early-2011, at the earliest. It is anticipated that the investment property standard would be adopted contemporaneously with the proposed new leasing standard. The discussion herein was based on the possibility of the issuance of an investment property standard in the US and has not been updated for this potential change in direction.