Need%20for%20disclosure%20regarding%20property

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Need for disclosure regarding property
valuations in financial reports according to
IFRS Bo Nordlund Techn dr, Royal Institute of
Technology, Stockholm
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Purpose of financial statements Interpretation
of IASBs Framework
Provide users with information useful for
decion-making in financial issues Users
primarily investors providing risk capital
Other stakeholders Banks Public
sector Employees Customers Suppliers
Anglo-saxon in many respects
Connection to investor theory
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Properties different accounting models
Owner occupied property
Investment property
Owner occupied properties (regardless chosen
model) and investment property (cost model)
Depreciation shall be based on a component
approach
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Accounting for external purposes Different
approaches
BALANCE SHEET APPROACH Correct wealth INCOME
STATEMENT APPROACH Correct income
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Qualitative characteristics financial
reporting Reliabilily
Relevance
Paragraph 37 in IASBs Framework
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How certain are valuations of properties?
- - - - - - -
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Real price development office buildings in
city locations - three largest cities of Sweden

Sourcewww.riksbank.se
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IFRS Principle illustration of effects moving
from historical cost accounting (HCA) to fair
value accounting (FVA)
Unrecognized value
New equity
Equity
New Total assets
HCA-based Asset value
Debts)
) Simplified illustration since value
appreciation of assets also affect tax debts
Assets
Debt Equity
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IFRS Accounting according to fair value model
in IAS 40 some interesting issues (2005)
Fair value adjust- ments after tax, 28 divided
with net profit
Fair value adjust- ments divided with rental
income
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• Value concepts and valuation methods
• Value concept
• Fair value Market value!
• Valuation methods
• Market approach (e.g. comparable sales methods)
• 2. Income approach (e.g. DCF-method)
  
• 3. Cost approach (e.g. DRC-method)
  

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Empirical study How are property valuations
conducted in practice?
Valuation method often described in financial
reports as an income approach (DCF-method) However
, as applied more of a comparable sales metod
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How are prognosis made for purpose of property
valuations?
Källa
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Need for disclosure regarding applied methods and
significant assumptions In valuations varies
depending what kind of asset valued