MASB defers implementation of IC 15

KUALA LUMPUR: The Malaysia Accounting Standards Board (MASB) has deferred the implementation of the IC Interpretation 15 Agreements for the Construction of Real Estate (IC 15) from July 1, 2010 to Jan 1, 2012.

IC 15 is MASB’s word-for-word reproduction of the IFRIC 15 (International Financial Reporting Interpretations Committee on real estate development) issued by the International Accounting Standards Board (IASB) in July 2008, and MASB commenced the due process for adoption in Aug 2008.

IFRIC 15 is a guidance note on the application of financial reporting standards that sets out the criteria for the recognition of revenue for property developers.

The impact on the Malaysian property industry has been hotly debated since MASB set a deadline for the adoption of IC 15 to take effect on July 1, 2010.

This is because IC 15 recognises profits based on the completion method as opposed to the currently practiced percentage of completion method.

According to MASB in an announcement on its website on Monday, Aug 30, the deferment to Jan 2012 was to allow stakeholders to continue deliberating its implementation as it noted that the sell-and-build business model used by property developers in Asia where both the seller and buyer share certain elements of risk over the real estate-in-progress, differs from real estate business models employed elsewhere.

“The deferment will also provide opportunities for feedback via MASB on a proposed new Standard on Revenue from Contracts with Customers which will subsume the requirements of IFRIC 15 upon issuance, expected to be in mid-2011.

“Therefore, it would be timely and more productive for stakeholders to analyse and provide timely input to the IASB for consideration before they finalise the standard on Revenue from Contracts with Customers,” it said.

“In light of the importance of the real estate sector to the Malaysian economy, the MASB Board in its deliberations on Aug 23 felt it would be prudent to temporarily defer the application of IC 15 to Jan 1, 2012,” it added.

In April 2010, the Real Estate and Housing Developers’ Association Malaysia (REHDA) had written to MASB to seek clarification on the implementation of IC 15 given the current legal framework and practices in Malaysia.

Subsequently, a task force was set by REHDA to look into this matter and a memorandum was presented to MASB and the Malaysian Institution of Accountants (MIA) on April 22.

As a result of the deferment, the current accounting practice will continue to apply. However, MASB said, companies that wish to apply the IC 15 earlier can do so.