IFRS Accounting for Real Estate

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IFRS Accounting for Real Estate Course Overview:

After a long period of stability, the IFRS regime for real estate assets and transactions is entering a period of rapid change and elevated uncertainty, with the imminent introduction of three major new financial reporting standards. IFRS 16 Leases, effective from 1st January 2019, substantially and controversially redraws the boundaries between operating and finance leases: IFRS 9 Financial Instruments, effective from 1st January 2018, brings all lease receivables into the scope of compulsory impairment provisioning based on expected credit losses; and IFRS 15 Revenue from Contracts with Customers, also effective from 1st January 2018, whilst retaining the basic IFRS principles for revenue recognition, calls for much more attention to be paid to the unbundling of the separate components in longer-term contracts.

At the same time, continued dissatisfaction with IFRS-based numbers, specifically as a basis for cross-border intercompany comparisons, underlines the importance of the industry-specific non-GAAP performance measures developed by EPRA.

This course has four principal objectives. It is intended:

  • to give preparers and users alike a comprehensive and tailored overview of the forthcoming changes to the IFRS regime as it impacts entities exposed to the real estate sector, as investors, owner-occupiers, lessors or lessees
  • to give preparers of accounts a firm basis for planning the practical implementation of the IFRS and EPRA reporting regimes
  • to enable senior managers of entities exposed to the real estate sector (in whatever capacity) to modify their decision-making processes to take account of the new accounting environment, especially in those areas where the standards permit or require the exercise of significant judgement
  • to equip investors and analysts with the necessary new knowledge and skills to make informed judgements about the financial performance, condition and prospects of entities exposed to the real estate sector

The IFRS Accounting for Real Estate course is essentially forward-looking and is accordingly based on IFRS accounting standards as published, regardless of their EU-endorsement status or their effective dates for mandatory adoption.

At every stage, the course will pinpoint the areas of continuing uncertainty and difficulty in the new standards, whether in their interpretation, application or implementation by preparers, or in their analysis by external users.

The course makes extensive use of real-life comparative case studies and of fully worked examples.

This course can be presented in-house via live webinar.

IFRS Accounting for Real Estate Course Content:

Owned property: refresher on the (largely unchanged) accounting requirements:

IAS 16, IAS 23 and IAS 40

  • Choosing between cost model and fair value model
  • Cost model: how to determine
    • Initial cost including borrowing costs and appropriate depreciation schedule
    • Identification and allocation of cost to separable elements
    • Identifying relevant indicators for impairment review
    • Estimating recoverable amount: ‘Value in use’ versus ‘Fair value less costs to sell’
  • Fair value model:
    • Estimating fair values (a) of unique assets and (b) in illiquid markets
    • Setting valuation assumptions
    • Trading and development properties

The shifting boundary between ownership and leasing

IAS 17 and IFRS 16

  • Overview of the key differences between IAS 17 and IFRS 16
    • ‘Right-of-use’ asset defined
    • Identifying a lease
    • Allocating consideration to lease and non-lease (service) components of a contract
    • Interaction between IFRS 16 and IFRS 15
    • Measuring a lease
    • Leases with variable payments
    • Lease modifications and options (extensions, terminations)
    • Subleases
    • Sale and leaseback transactions
    • Available options and how/when to use them
  • Detailed examination (from perspective of all parties) of typical transactions whose classification will change after transition to IFRS 16
  • Financial impacts
    • Impact of IFRS 15 and 16 on published financial statements
    • Impact of the IFRS 9 expected loss impairment regime for all lease receivables
    • Impact on bank covenants and on modification of financings

Other continuing issues (examples only)

  • Rent-free periods and other incentives
  • Tenants’ improvements
  • Step-up rents
  • Disclosures, especially regarding management judgements, impairment and revaluations
  • EPRA performance measures, and the EPRA-to-IFRS reconciliation
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