GLOBAL - The International Accounting Standards Board (IASB) has indicated it will not adopt proposals forcing real estate companies to remove property values and rental income from their balance sheets.
The European Public Real Estate Association (EPRA), which has been lobbying against the proposals, claimed a victory in securing the "tentative" decision from IASB.
IASB and its US equivalent, the Financial Accounting Standards Board (FASB), have been working to converge their accounting standards into a single global one and have proposed reclassifying investment property as a financial asset in the process.
The move would have meant that real estate companies could no longer report rental income in their income statements or real estate capital values on their balance sheets, calling into question the viability of their business models.
Occupiers of real estate will be affected by the IASB changes as they will have to record leases as if they were bank loans, with rental obligations during the remaining period of the lease contract shown as a liability. However, it is hoped that property owners will be excluded from any changes.
EPRA has been lobbying in conjunction with other organisations, such as the National Association of Real Estate Trusts (NAREIT) in the US and via the alliance of international property representative firms called REESA.
The lobbying groups have all argued that the proposed new leasing model would not provide useful information to investors and adversely affect the ability of investors to assess the performance of investment property and real estate companies.
"We are very encouraged by this decision. It shows that the IASB have listened to the views expressed by the industry," said Gareth Lewis, director of finance at EPRA.
"This validates the huge amount of time and effort taken by EPRA and its partners in the REESA alliance to present a global view on behalf of the industry that was also the view of the investors. Our message was difficult for the regulators to ignore and will hopefully result in more transparent and useful accounting framework for investment property than would otherwise have been the case," he added.