In an effort to align US GAAP to IFRS, FASB is considering expanding the fair- value accounting to land and buildings held for investment. The biggest impact of the change will be on real estate companies and real estate investment trusts. At present such assets are recorded at historical cost, but with the new standard fair value or in other terms the market value of the asset will be the basis of recording the asset in the financial statements.
What would the impact on companies’ financial statement be. Well that depends on the age of the properties. If the property is old and has been depreciated significantly, then the value of those assets would be significantly higher; but on the other side assets that were bought at the peak of the market in 2006-2007-2008, possibly would have significant decline in the value of the property that will be recorded on the balance sheet.
FASB’s rule is expected to be similar to International Accounting Standard 40, which allows a fair-value option.
The proposal is expected to be sometime next year and there is no time set for implementation yet. But the good news is that we are moving towards the global standards.