Education session on FASB project
The FASB staff provided the IASB an update on the FASB's project on investment properties. US GAAP currently does not contain any similar guidance to that within IAS 40. As part of the Boards' leasing project, the FASB made the determination that in order to establish the appropriate scope of lessor accounting, creating accounting guidance for investment properties would also be required.
The FASB has taken an entity approach rather than a property approach as under IAS 40. Also, rather than including a cost or fair value measurement election, the FASB would require fair value accounting for those investment properties held by investment property entities.
The criteria to qualify as an investment property entity is modelled off the same criteria forthcoming in the investment company definition including the nature of the business activities, having an express business purpose, having unit ownership, requiring pooling of funds, and being a reporting entity. Entities with only one investor that account for their investments at fair value under US GAAP would not be subject to the unit ownership and pooling of funds criteria; these entities may include pension funds, endowment funds and investment companies.
The FASB proposals would not permit a practicability exception to fair value for investment properties under construction as permitted under IAS 40. Also, right of use assets relating to investment properties would be measured at fair value. The rental revenues earned by investment properties would be recognised on a straight-line basis.
The FASB model would require consolidation of controlling interest in other investment properties but would require fair value accounting for controlling interests in non-investment property entities. However, for non-investment property entities who provide services to an investment property entity, then consolidation would be applied when a controlling interest is held.
With regard to financial statement presentation, the FASB proposals would require separate presentation on the income statement for rental income and rental expenses and separate presentation on the balance sheet of fair value of investment properties and debt.
The IASB asked the FASB staff and Board members various questions on their decisions to date. The staff mentioned they intend to issue an exposure draft on the proposals for investment property entities concurrent with the exposure draft on investment entities because of the similarities in the scope criteria; this would likely be during July 2011.