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An International Exploration of Financial Reporting Practices in the Real Estate Industry

Author

Listed:
  • Robert Edelstein

    (Haas School of Business, University of California at Berkeley, Berkeley, CA 94720)

  • Steve Fortin

    (Desautels Faculty of Management, McGill University, Montreal, QC H3A 1G5)

  • Desmond Tsang

    (Desautels Faculty of Management, McGill University, Montreal, QC H3A 1G5)

Abstract

The adoption of the new International Financial Reporting Standards (IFRS), by allowing the option of fair value accounting for real estate investment properties, has dramatically altered the landscape of financial reporting for real estate firms worldwide. In this exploratory study, by examining the financial statements and disclosures of 45 international real estate firms, we demonstrate that the implementation of IFRS has affected financial reporting practices in the real estate industry. We find that under the IFRS, companies place emphasis on market asset valuations, vis-a-vis alternative metrics for current performance. We also find that most real estate firms in our sample choose to report fair values for investment properties in their financial statements rather than the notes to the financial statements. Finally, there is a wide variation in firm disclosures with regards to the determinants of fair market values.

Suggested Citation

  • Robert Edelstein & Steve Fortin & Desmond Tsang, 2012. "An International Exploration of Financial Reporting Practices in the Real Estate Industry," International Real Estate Review, Global Social Science Institute, vol. 15(3), pages 347-372.
    • Handle: RePEc:ire:issued:v:15:n:03:2012:p:347-372
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    References listed on IDEAS

    as
    1. Andrés Navarro-Galera & María del Carmen Pérez-López & Lázaro Rodríguez-Ariza, 2010. "Fair Value of Real Estate and Utility of Financial Statements of Construction Companies," International Real Estate Review, Global Social Science Institute, vol. 13(3), pages 323-350.
    2. Aboody, David & Barth, Mary E. & Kasznik, Ron, 1999. "Revaluations of fixed assets and future firm performance: Evidence from the UK1," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 149-178, January.
    3. Barth, ME & Clinch, G, 1998. "Revalued financial, tangible, and intangible assets: Associations with share prices and non-market-based value estimates," Journal of Accounting Research, Wiley Blackwell, vol. 36, pages 199-233.
    4. Danny Ben-Shahar & Eyal Sulganik & Desmond Tsang, 2011. "Funds from Operations Versus Net Income: Examining the Dividend-Relevance of REIT Performance Measures," Journal of Real Estate Research, American Real Estate Society, vol. 33(3), pages 415-442.
    5. Danny Ben-Shahar & Yoram Margalioth & Eyal Sulganik, 2009. "The Straight-Line Depreciation is Wanted, Dead or Alive," Journal of Real Estate Research, American Real Estate Society, vol. 31(3), pages 351-370.
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    More about this item

    Keywords

    International Real Estate; Investment Properties; Performance Measurement; International Financial Reporting Standards (IFRS); Fair Value Accounting;
    All these keywords.

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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