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The Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update intended to develop accounting guidance for investment property entities. Comments on the proposal are requested by January 5, 2012.
This 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. The proposed amendments also would introduce additional presentation and disclosure requirements for an investment property entity.
This proposed Update is a result of the FASB’s efforts to align the scope of entities that would apply the proposed lessor accounting model under U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS) and to address the diversity in practice about the accounting by real estate entities.
As part of the FASB and the International Accounting Standard Board’s (IASB) joint project on accounting for leases, the IASB decided that a lessor of an investment property would not be required to apply the proposed lessor accounting requirements in the IASB’s August 2010 Exposure Draft, Leases, if the lessor measures its investment properties at fair value by electing the fair value model under IAS 40, Investment Property. Unlike IFRS, U.S. 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 decided to prescribe the circumstances when fair value would be required, rather than introduce an optional accounting practice into U.S. GAAP.
FASB Seeks Comments on Proposal to Clarify Criteria for Investment Company Accounting
The Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update intended to improve and converge financial reporting by setting forth consistent criteria for determining whether an entity is an investment company. Comments on the proposed Update are requested by January 5, 2012.
This proposed Update is a result of the efforts of the FASB and the International Accounting Standards Board (IASB) to develop consistent criteria for determining whether an entity is an investment company. Under longstanding U.S. generally accepted accounting principles (GAAP), investment companies carry all of their investments at fair value, even if they hold a controlling interest in another company. The primary changes being proposed by the FASB relate to which entities would be considered investment companies as well as certain disclosure and presentation requirements. These changes are being proposed for the first time under International Financial Reporting Standards (IFRS). Therefore, the proposed Update would improve the comparability between entities that meet the criteria to be investment companies under U.S. GAAP and those that meet the criteria to be investment entities under the proposed amendments to IFRS.
In addition to the changes to the criteria for determining whether an entity is an investment company, the FASB also proposes that an investment company consolidate another investment company if it holds a controlling financial interest in the entity.
The IASB issued its proposal, Investment Entities, on August 25, 2011. Comments on the IASB’s Exposure Draft are also requested by January 5, 2012.
Source: FASB
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