Rehda urges deferment of IFRIC 15 pending new standards

KUALA LUMPUR: The Real Estate and Housing Developers' Association of Malaysia (Rehda) has called for the implementation of the International Financial Reporting Interpretations Committee 15 (IFRIC 15) to be postponed further, citing a need to resolve issues affecting its application on property developers here.

Rehda president Datuk Seri Michael Yam said it would be "counterproductive" to force the adoption of IFRIC 15 on Jan 1, 2012 before a proposed new standard of revenue from contracts with customers which will subsume the requirements of the former is finalised.

"In the event that the new revenue standard is not finalised by Jan 1, 2012, we hope the MASB [Malaysian Accounting Standards Board] will consider further extending the timeline for implementation and permit the continued use of the present MASB FRS201 standard which prescribes the use of the percentage of completion (POC) method in Malaysia," he said in a press statement dated Saturday, June 18.

Currently, the MASB and the International Accounting Standards Board (IASB) are evaluating feedback from stakeholders on the proposed new standard which is expected to be finalised by mid-2011. However, Rehda claims that international discussions are still underway on the proposed new standard.

"We would also advise all Rehda members against any early adoption of IFRIC 15 given that there is still no consensus on the proper application of this standard which, in any case, will soon be obsolete. Without proper guidance and a clear consensus on the proper interpretation of IFRIC 15 in the Malaysian context, premature adoption can only cause confusion and may result in undesirable consequences," he added.

IFRIC 15 is a guidance note issued by the IASB pertaining to the recognition of revenue from projects, whereby the POC method is allowed subject to the laws of each jurisdiction and the terms of agreements entered into with property purchasers.

With the proposed new standards, the aforesaid terms of agreement will still be paramount when deciding how income should be recognised.

The property development industry was up in arms over the adoption of IFRIC 15 as confusion arose from whether income can be recognised on a POC basis or the completion method.

Rehda had argued that the completion method was not suitable for Asia developers whose business model is mainly to sell then build, with buyers and their end financiers progressively paying, as opposed to building and then selling completed properties.

"Until such time there is a change in the delivery system, accounts of property developers must reflect the current business, legal and commercial reality adopted in Malaysia," said Yam.

MASB had postponed the adoption of IFRIC 15 from July 1, 2010 to Jan 1, 2012.