December 2020

As we head into the holiday period, we thought it would be useful to recap on a number of thought leadership and financial reporting matters that we expect will impact Real Estate structures for the coming year end.

COVID-19 Illustrative disclosures – Real Estate

KPMG have published a supplemental guide to financial statements that includes guidance specifically relevant to real estate companies/funds. In particular, the illustrative examples provide example disclosures which may assist preparers in making appropriate disclosures relating to the valuation and rent changes in the current environment.

Auditing ISA 540 : Estimates

While the implications of auditing standards rarely impact our clients, this new standard impacts both auditors and clients. The revisions to ISA (UK) 540 (Revised) will have significant implications for administrators, financial controllers and management responsible for financial statement preparation and the determination of accounting estimates.

The new standard is applicable to periods commencing on or after 15 December 2019 and in most instances will impact years ended 31 December 2020.

The new standard will require auditors to focus on managements consideration of controls over the estimation process, which includes property valuations. Some examples of the impact on management of entities and expected interactions with auditors will include:

  • challenging managements methods and requirement for robust consideration of alternative or contradictory evidence
  • consideration of managements estimation process which for real estate will regularly involve the directors, asset manager, property manager and the independent valuer
  • the time required considering estimates will increase and the required information requests will be more focused
  • increased challenge on disclosures in the financial statements

We expect one outcome of this change will also be more findings on controls which either are not in place or evidenced during the valuation process.

IFRS 16 Leases  - The landlord perspective

Landlords found much that was familiar in IFRS 16 Leases. But some things have changed. And the impact of the COVID-19 coronavirus pandemic has meant that landlords have been dealing with unprecedented levels of defaults, rent concessions and other lease modifications.

Our Real estate leases – The landlord perspective publication covers key areas of IFRS 16 that are particularly relevant to landlords in real estate leases. Each section is illustrated with examples based on real-life terms and conditions.

US GAAP - Facing COVID-19 challenges

In 2020, nothing in the world was left untouched by the effects of COVID-19, including the standard-setting agenda. After more than five years of unprecedented accounting change under both IFRS Standards and US GAAP, timelines were extended, and the International Accounting Standards Board and the FASB provided targeted guidance offering some accounting relief.

As the 2020 reliefs continue to demonstrate, the effective dates of requirements play a key role in understanding the GAAP differences at any particular point in time.

The new edition of our comparison of IFRS Standards and US GAAP highlights the key differences between the two frameworks, based on 2020 calendar year ends.

If you're a preparer, it may help you to identify areas to emphasise in your financial statements; if you're a user, it may help you spot areas to focus on in your dialogue with preparers.

Focus on improving disclosures 

Measuring fair value can present significant challenges for preparers of financial statements, particularly because it involves using judgement and estimation. 

Fair value measurement is an area in which IFRS Standards and US GAAP are substantially converged. However, recent changes to certain fair value disclosure requirements under US GAAP have created some further differences.

The International Accounting Standards Board’s Disclosure Initiative project may provide an opportunity to bridge that gap, with proposed amendments to the IFRS 13 disclosure requirements expected in 2020.

In the meantime, we are pleased to share our insight and practical guidance to help you apply the new disclosure requirements and understand the key differences between IFRS Standards and US GAAP in our fourth edition of Fair Value Measurement: Questions and Answers.

If you wish to discuss any of these publications or your fund or structure, please do not hesitate to contact us.