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FASB Consults On Investment Property Reporting Rules

by Mike Godfrey,, Washington

26 October 2011

The US accounting standards setter, the Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update intended to develop accounting guidance for investment property entities.

The proposed Update would require an entity that meets certain criteria to measure its investment properties at fair value, rather than to apply lease accounting to each individual lease. In addition, the proposed amendments would introduce additional presentation and disclosure requirements for an investment property entity.

The proposal is as a result of the FASB’s efforts to align the scope of entities that would apply the proposed lessor accounting model under US Generally Accepted Accounting Principles (GAAP), with International Financial Reporting Standards (IFRS), and to address the diversity seen in practice in accounting by real estate entities.

Unlike IFRS, US GAAP does not contain specific accounting requirements for investment properties. As a result, an entity that invests in real estate properties but is not an investment company is required to measure its real estate properties at cost under Topic 360 'Property, Plant, and Equipment', and account for the leases separately.

In response to consistent investor input, the FASB has decided in its latest Update to prescribe the circumstances when fair value would be required, as is the case in IFRS, rather than introduce an optional accounting practice into US GAAP.

Comments on the proposal are requested by January 5, 2012.

TAGS: generally accepted accounting principles (GAAP) | tax | investment | real-estate investment | law | accounting | real-estate | international financial reporting standards (IFRS) | United States | financial reporting | standards

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