FASB TO EXPLORE PROVIDING OPTION TO REPORT INVESTMENT PROPERTY AT FAIR VALUE OR COST

As a result of a tentative decision on lease accounting reached by the International Accounting Standards Board (IASB) yesterday, the Financial Accounting Standards Board (FASB) instructed its staff to prepare an agenda proposal that would address the potential adoption of a standard that would provide a choice to report investment property at cost or fair value under U.S. GAAP.

The IASB's tentative decision was the product of yesterday's joint FASB/IASB meeting, which was attended by NAREIT. At the session, the Boards discussed accounting for leases of investment property by owners.

The IASB reached a tentative decision on how lessors would in the future account for leases of investment property in accordance with International Accounting Standard 40 (IAS 40). If lessors elect to report investment property at fair value under IAS 40, they would not be required to account for leases pursuant to the new leases standard being developed by the Boards. If lessors choose the cost approach for reporting investment property under IAS 40, these lessors would be required to apply the lease principles currently being developed in the new FASB/IASB lease accounting model.

This new model would require landlords to report a receivable for the right to receive lease payments and a performance obligation for providing lessees with the right to use space. Additionally, the new lease accounting would require interest income to be recognized in the income statement, which would preclude rental payments from being recognized in their entirety as rental income.