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Monday June 20, 2011

Property development industry not yet ready for new accounting practice

KUALA LUMPUR: The property development industry is not yet ready for a new accounting practice that recognises revenue based on project completion, said Real Estate and Housing Developers' Association Malaysia (Rehda) president Datuk Seri Michael Yam.

Yam has suggested a delay in the new ruling under the International Financial Reporting Interpretations Committee (IFRIC) 15, which is to be implemented on Jan 1, 2012.

Speaking at a briefing on Saturday, he said industry players were worried because a new common revenue recognition standard, called the New Revenue Standard (NRS), was yet to be finalised even though there were just six months to go before IFRIC 15 was to be implemented.

The Malaysian Accounting Standards Board (MASB) had said last year that the NRS was expected to subsume IFRIC 15 requirements.

IFRIC 15, which is supposed to take effect on July 1 last year, states that developers can only report revenue from completed projects in their final statements. No revenue is to be declared while the project is ongoing.

MASB had deferred its implementation date to 2012 after opposition from industry players last year.

Workers at a construction site in Kuching. The new IFRIC 15 rule allows developers to report only revenue from completed projects in their final statements.

This was to allow further deliberation on how the new ruling would affect the industry and give it an opportunity to receive feedback on the NRS.

Yam said it would be counter-productive and cause investor confusion if the IFRIC 15 was implemented before the NRS was finalised.

“In the event that the NRS is not finalised by Jan 1, 2012, we hope MASB will consider further extending the timeline for implementation,” he said.

He said MASB should allow the continued use of the current accounting practice which used the percentage-of-completion (POC) method.

Yam said the current system, where developers report profits progressively, was most suited to the local industry.

“In this part of the world, it is a fantastic delivery system where buyers' money are used to build and deliver the houses progressively,” he said.

“Even under the NRS, the POC method appropriately reflects the present business, legal and regulatory framework in Malaysia,” he said.

Yam advised Rehda members against early adoption of IRFIC 15 as there was still no consensus on proper application of the standard.

“Without proper guidance and clear consensus on the proper interpretation of IFRIC 15 in the Malaysian context, premature adoption can only cause confusion,” he said.

Yam said the International Accounting Standards Body (IASB) and MASB needed to consider Malaysia's delivery system in formulating the new standard.

“(They should) Come up with something in line with the way we deliver our products and recognise profits,” he said.

Yam expressed appreciation that Rehda had been afforded opportunities to present its views on the NRS to both IASB and MASB.

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