Vol. XXII, No. 98 [ BusinessWorld Online ]
Wednesday, December 10, 2008 | MANILA, PHILIPPINES
BY DON GIL K. CARREON
IMPLEMENTATION of an accounting rule that bars property firms from booking revenues until their projects are completed has officially been deferred for three years.
The Securities and Exchange Commission (SEC), in a notice issued on Friday, said it had moved to January 12, 2012 the enforcement of Interpretation No. 15 issued by the International Financial Reporting Interpretations Committee regarding Agreements for the Construction of Real Estate (IFRIC 15).
The rule would have taken effect beginning next year but the industry had pushed for its deferment, citing the likely effect on bottomlines amid a global economic downturn. The SEC en banc decided to suspend implementation last month.
The SEC, in last week’s order, said real estate developers may implement the rule before 2012 but this should be disclosed to the corporate watchdog.
"An entity that would like to make an explicit and unreserved statement of compliance with International Financial Reporting Standards would have to apply IFRIC 15 for annual periods on or after January 1, 2009," it said.
In October, the Subdivision and Housing Developers Association, Organization of Socialized Housing Developers of the Philippines, National Real Estate Association, and the Chamber of Real Estate Builders’ Association (CREBA) asked the SEC for the three-year moratorium.
The developers said implementing the rule next year as scheduled would "impact adversely on the industry and could likely trigger a meltdown in the stock index as investors lose confidence in the [real estate] business from the resultant low income or even loss during the period when the project is under construction."
The groups added there would be an imbalance between costs and revenues as companies would have to recognize expenses as these occur even as revenues could only be realized upon completion of a project.
The rule would have banned the industry practice of booking revenues even for projects in the pre-selling stage.
"We are afraid the industry is not prepared to adopt this new interpretation on Jan. 1, 2009 ... The real estate sector would require ample time to evaluate and formulate a set of accounting standards that would be responsive to the local setting and practice in the industry."
Former CREBA Executive Director Albino E. Paranada welcomed the SEC move.
"We think that the rule would be helpful to the industry but it has to go through the right process of consultation with the stakeholders," he said, adding the three years will allow the industry to adjust.
Ayala Land, Inc. spokesman Alfonso D. Reyes also welcomed the deferment, but noted that since the rule only changes accounting procedures, fundamentally sound property developers should not be concerned even if it were implemented.
He said the rule could lead to companies having "lumpy" revenues, wherein financial reports vary wildly from year to year with firms not able to realize gains from ongoing projects.
Global Property Guide analyst Prince Christian R. Cruz, however, said the deferment may help only in the short term.
"By 2010, some countries and some companies that have implemented that rule will be recovering already," Mr. Cruz said.
"[Deferment of the rule change] might be helpful in the short run, but in the long run it could prompt suspicion on the figures being presented by local companies among foreign investors if we use different accounting rules," he said.
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