Property developers and companies with substantial investment properties would be negatively affected by the new Private Entities Reporting Standards (MPERS) that will take effect next year, reported The Borneo Post.
“Property developers will be significantly affected by the new financial reporting standards. Private entities with significant intangible assets, goodwill or investment properties will also be severely affected,” said Ernst and Young (EY) East Malaysia managing partner Yong Voon Kar.
One of the impacts is that the borrowings costs of property developers must be factored in their earnings or loss, according to EY Malaysia Technical Partner Stephen Oong.
“If a property developer borrowed substantial amounts to acquire land and to fund development activities, their bottom line will be significantly affected,” he explained.
The effect of the new standards would be felt by those in the real estate industry, Oong noted as it is common for firms to take out loans for building factories, plants and buildings. But under MPERS all interest costs must be taken into account as expenses and it cannot be capitalised as part of the costs of these properties.
Moreover, entities with significant investment properties will be required to book their properties based on their fair value price.
“This can be an expensive compliance requirement because companies will probably have to engage the service of professional valuers,” Oong added.
Essentially, MPERS is based on the principles of the International Accounting Standards Board (IASB) International Financial reporting Standards (IFRS) for SMEs published in July 2009. However, there are differences in regards to income tax and property development activities.
Under the new rules, private entities may choose to adopt the MPERS or the Malaysian Financial Reporting Standards (MFRS) in its entirety.