Real estate sales
Comments from ACCA
October 2007
ACCA is pleased to have this opportunity to comment on the draft Interpretation D21 on the above subject. The draft interpretation was considered by ACCA’s Financial Reporting Committee.
We support the draft interpretation. We agree that sales of real estate units where the design and construction is largely specified by the developer and not by the purchaser, should be treated as sales of goods under IAS18 and not as construction contracts under IAS11.
We note three matters where the text might be adjusted:
- To add an emphasis on the need for a clear statement of the accounting policy adopted in these cases. Real estate sales in particular tend to be subject to legal variations from jurisdiction to jurisdiction and the impact of these has to be accommodated in the treatment applied.
- The interpretation addresses real estate sales specifically and we are not sure that the principles concerning the boundary between IAS18 and IAS11 set out here should necessarily be extended to other sorts of cases. Real estate always involves a unique asset that is not replaceable by another, even if apparently identical.
- The feature noted in paragraphs 9(b) and 10(b) of the transfer of risks and rewards may not be a very helpful one as in these sorts of cases there will always be a substantial sharing of risks between the two parties – for example construction risks with one party, market value risks with the other.