The Financial Reporting Standards Council (FRSC) has issued an Invitation to Comment on Draft Interpretation D21, Real Estate Sales, issued by the International Financial Reporting Interpretations Committee (IFRIC), the interpretative arm of the International Accounting Standards Board (IASB). IFRIC Draft Interpretation D21 aims to standardize accounting practice among real estate developers for sales of units, such as apartments, condominiums or houses,
‘off plan’, i.e. before construction is complete.

At present, real estate developers interpret IFRSs, or PFRS in the Philippines, differently and record revenue for the sale of the units at different times. Some record revenue only when they have handed over the completed unit to the buyer, while others record revenue earlier, as construction progresses, by reference to the stage of completion of the development.

IFRIC Draft Interpretation D21 proposes that revenue should be recorded as construction progresses only if the developer is providing construction services, rather than selling goods (completed real estate units). It proposes features that indicate that the seller is providing construction services. IFRIC states that in many countries, these features tend currently not to be present in typical off plan or pre-completion sale agreements. The proposed Interpretation would in many cases require developers that are currently applying IAS 11 to apply IAS 18, Revenue, instead.

The draft Interpretation also proposes guidance on how IAS 18 should be applied to real estate sales. This guidance would supersede existing guidance contained in the appendix to IAS 18. The existing guidance, which accompanies but is not formally part of IAS 18, is now regarded as unclear and capable of being interpreted in ways that are inconsistent with the requirements of the Standard itself.

The FRSC Invitation to Comment and IFRIC Draft Interpretation D21 may be downloaded from the Philippine Financial Reporting Standards (PFRS) website, within the PICPA website (www.picpa.com.ph). IFRIC Draft Interpretation D21 may also be downloaded from the IASB website (www.iasb.org).

The FRSC invites comments on IFRIC Draft Interpretation D21 by September 25, 2007, to enable the Council to consider and include comments from Philippine respondents in its response to the IASB.