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Need for disclosure regarding property valuations in financial reports according to IFRS

This article discusses the need for disclosure in property valuations in financial reports according to IFRS. It covers the purpose of financial statements, different accounting models for owner-occupied and investment properties, valuation methods, and the importance of disclosure in ensuring reliable and relevant financial information.

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Need for disclosure regarding property valuations in financial reports according to IFRS

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  1. Need for disclosure regarding property valuations in financial reports according to IFRS Bo Nordlund Techn dr, Royal Institute of Technology, Stockholm

  2. Purpose of financial statements: Interpretation of IASB:s 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”

  3. 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

  4. Accounting for external purposes– Different approaches BALANCE SHEET APPROACH: Correct wealth INCOME STATEMENT APPROACH: Correct income

  5. Qualitative characteristics – financial reporting: Reliabilily Relevance Paragraph 37 in IASB:s Framework:

  6. How certain are valuations of properties? - - - - - - -

  7. Real price development office buildings in city locations - three largest cities of Sweden Source:’www.riksbank.se

  8. 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

  9. 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

  10. 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)

  11. 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…

  12. How are prognosis made for purpose of property valuations? Källa:

  13. Need for disclosure regarding applied methods and significant assumptions In valuations varies depending what kind of asset valued

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