Disclosure Requirements related to Investment Property

Abstract

Background and problem: The IFRS/IAS standards resulted in changes of required information from quoted companies. The standard IAS 40 implicated a possibility of valuing investment property at fair value, which has contributed to new disclosure requirements connected to the fair value model. We found it interesting to examine the real estate companies’ fulfilment of the new disclosure requirements and the resources needed to fulfil the requirements. The users’ opinion about disclosed information was considered interesting to examine and whether the information emanating from the new disclosure requirements ameliorated the users’ possibility to valuate investment property. Purpose: The thesis should describe and analyze the disclosed information regarding investment property provided by the real estate industry. To be able to fulfil the main purpose the study will examine the fulfilment of the disclosure requirements, describe resources demanded to meet the increased demand of information and examine if the disclosed information by the real estate companies corresponds to the users’ needs. Method: The study has a combined quantitative and qualitative approach. Secondary data sources consisted of the annual reports from the 15 real estate companies quoted on OMX Nordic Exchange Stockholm holding investment property. Primary data consisted of six interviews representing real estate companies, banks and analysts. Results and conclusions: The fulfilment of the disclosure requirements varies. The balancing of carrying amounts is an area where the companies are proficient in disclosing essential information. The examination has also found four areas where shortages could be distinguished: (1) the criteria to separate investment property, (2) specification of direct costs contributed or not to rentals, (3) variables used in the valuation model and (4) disclosing essential risks and uncertainties. The resources needed to meet the increased demand for information have increased and the study has found the solutions being reallocation, rationalization and consulting external experts. The users are mainly satisfied with the disclosed information but would like more information related to the valuation of investment property and project property. Sensitivity analysis is a tool enabling a quick overview of the company’s influencing factors but a standardisation of the parameters would be preferable. Recommendations for future research: Three areas where demands for future research have been distinguished are: What expenditures related to investment property should be capitalized? How should an appropriate formation of tax on investment property be formulated? Should sensitivity analyses be required and is a standardisation feasible?