New RICS Guidance on Valuing Owner-Occupier Properties
A new Valuation Information Paper issued by RICS provides timely input into the global debate on how best to value owner-occupied properties in company accounts. It provides detailed guidance to valuers and users of valuations on applying the accounting principles to real-life business scenarios.
Under UK accounting standards, owner-occupied properties currently appear in company accounts at Existing Use Value, a different approach from that adopted under international accounting standards (IAS). With the latter due to come into effect for all EU-listed companies in 2005, owner occupied property - as the IAS specify currently - would generally appear in accounts at Market Value i.e. what it could be sold for rather than what it would cost to replace what the company needs for its continuing business.
The information paper highlights that this change could produce dramatically different results. For example, a company owning an industrial plant occupying land suitable for development of a shopping centre would need to show the property in the accounts at the land value for shopping centre development, even though it may be very costly, or impossible, for the operation to relocate. In other cases, the difference could be in the other direction. A company that had just built a large office building for its own use in an unconventional location would have to write the value down to its market value, which might be next to nothing.
The International Accounting Standards Board is currently in the process of reviewing the IAS that includes property revaluation.
Derek Epstein, chair of the RICS Valuation Methodology Group, said:
'While it appears unlikely that the International Accounting Standards will be amended to permit the use of Existing Use Value, it is hoped that the new Valuation Information Paper will inform the debate and lead to modifications that will avoid some of the anomalies that would arise if every property had to be stated at Market Value.'
For further information please visit www.rics.org.uk