I.F.R.S. – International

Financial Reporting Standards

At InFocus Appraisals – We are ready! (www.InFocusAppraisals.com)

Over 100 countries including UK the EU Nations Australia and New Zealand have already adopted I.F.R.S. Japan China India and Brazil South Korea and Israel are in the process of converging with I.F.R.S. and Canada will adopt I.F.R.S. fully on Jan 1 2011.

In Jan 2008 the chartered financial analyst’s (CFA) announced that real estate investments will require independent evaluations every 3 years and internal evaluations with disclosure of underlying assumptions will be reported quarterly. The Canadian Securities Administrators (CSA) issued a concept paper containing tentative conclusion that financial statements may be prepared under I.F.R.S. for the financial year beginning on or after Jan 1 2009.

There are 3 important differences between I.F.R.S. and Canadian Generally Accepted Accounting principles (GAAP).

1. impairment
2. securitization
3. reevaluation

Add to these first time adoption of I.F.R.S.

I.F.R.S. requires the first balance sheet to:

1. A recognize all assets and liabilities that I.F.R.S. allows
2. re-classify items in I.F.R.S. that were previously classified differently in GAAP.
3. apply I.F.R.S. in measuring all assets and liabilities.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date assuming a market based measurement base on assumptions market participants would make.

Impact on appraisers.

I.F.R.S. requires at least one year’s comparative figures Jan. 1, 2010. CFA commencing Jan 1 2008 real estate evaluations must be done quarterly internally and externally at least every three years if you are a publicly accountable entity PAE I.F.R.S. is mandatory boundaries of PAE are not yet finalized. Realistically any company wanting to maximize their value will likely adopt to report fair value under I.F.R.S... Property plant and equipment are initially recognized at cost and after recognition they are reevaluated at fair value. In many cases when the property was developed with a specific use in mind or a value in use a market prospective can result in an impairment loss which can be written down in the quarter it is recognized. I.F.R.S. offers two opportunities to go for measurement after recognition. One is the cost model or the reevaluation model once an entity chooses either of these models they are pretty much stuck with that for the long term. Reevaluation model requires that this revaluation was done with sufficient regularity. Class of property plant and equipment is grouping of assets of similar nature and is used in the entities operations. The following examples of separate classes:

1. land
2. land and buildings
3. machinery
4. ships
5. aircraft
6. motor vehicles
7. furniture and fixtures
8. office equipment.

Reevaluation is done in class by class basis accounting is done item by item basis all items within a class reevaluated simultaneously. If assets carrying amount is increased as a result of reevaluation increase shall be credited to equity or profit and loss and similarly that the assets carrying decreases result in the reevaluation decrease will be debited to profit and loss or equity. Ultimately over the life of the asset there will never be a gain recorded in a profit or loss as a result of reevaluation and that gain from revaluation will end up directly in equity and the total depreciation expense charged to income will be greater than it originally cost as it would be based on revaluation amount.

Definition of impairment.

An impairment loss is the amount by which the carrying amount of an asset or cash generating unit exceeds its recoverable amount. Recoverable amount of an asset or a cash bearing unit is the higher of its fair value less cost to sell and its value in use. Impairment indicators external sources of information significantly decline the market value significant changes in technological market economically environment that have an adverse affect on the entity. Increase in market interest rates or other market rates of return on investment are in fact a discount rate used in calculating the value in use. Carry amount is greater than market capitalization internal sources of information evidence of obsolesce or physical damage significant change in the manner or extent an asset is used or is expected to be used in the near future may have an adverse effect on the entity economic performance is or will be worse than expected.

Fair value less cost to sell should be based on the price in a binding sale or agreement arms length transaction i.e.: not speculation or market price less cost of disposal of an asset that is traded in an active market or best information available to the entity value in use is the present value of future cash flows expected to be derived from an asset of cash generating unit. As far as allocation corporate overhead on reasonable basis allowances that must be reflected in the calculation.

1. estimate of future cash flows
2. expectations of possible variations (dollars or timing);
3. value of time value of money
4. price per bearing the uncertainty
5. other factors that market participants with reflect

Impairment loss is recognized immediately in P&L. Most carry reevaluation amount which correlates with another standard. Adjust depreciation amortization in the future periods. Determine the rate of deferred tax asset/ liability.

What this means to you:

If you are in need of an appraisal in the coming months - USE AN APPRAISER WHO IS READY FOR I.F.R.S. so that when you need real estate valuation updates for balance sheet reporting it can be available. As an I.F.R.S. ready appraiser we will keep an updated record of your property and the factors that affect it's value. Provided there are no major changes to the property, we can provide updates when needed for I.F.R.S. reporting at a nominal fee. We are a young company and we're here for the long term so you can expect years of capable service.