U.S. real estate companies planning for a possible move to International Financial Reporting Standards should learn some key lessons from the experience of their peers in Europe, says a new report from Deloitte.
The study, "Experiences from across the pond – Ten lessons from European IFRS conversion in the Real Estate industry," says a move to IFRS needn't be as complicated as some companies fear.
“Our experience was that company CFOs and finance teams suffered a degree of trepidation and indecisiveness as to where to begin for fear of starting in the wrong place,” the report says. “However, once they were immersed in the conversion process, they began to understand that it was not as daunting it was held out to be.”
On the downside, U.S. real estate companies will face some industry-specific challenges if and when they move from U.S. GAAP to IFRS, the report says.
For example, IFRS gives companies the option to report the value of investment properties at either fair value or historical cost with disclosure of fair values. That means companies may need to talk to external stakeholders about how they would react to any volatility in fair values. It may also put debt covenant compliance at risk. In their adoption of IFRS, real estate companies in Europe have almost universally chosen the fair-value model, the report says.
On the up side, some commonly difficult aspects of IFRS conversion are unlikely to trouble real estate companies, says Deloitte. For example, they tend not to have multiple and diverse revenue streams, which have caused problems in other sectors, and usually have a relatively low number of employees, which makes the pension aspects of IFRS adoption easier.
No comments yet