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FASB Seeks Comments on Proposal on Accounting for Investment Property Entities

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.

The proposed Update is available at www.fasb.org.

About the Financial Accounting Standards Board

Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information. For more information about the FASB, visit our website at www.fasb.org.

Financial Accounting Standards Board
Robert W. Stewart, 203-956-3451