If your real estate interests are global, or if you’re getting ready to take them global, you know there’s a plethora of factors to take into account, ranging from depreciation to time zones. It’s also important to consider questions around financial reporting and IFRS services.
IFRS (International Financial Reporting Standards) is a set of principles that provide a standardized framework for reporting the financial performance of a company. Since IFRS is standardized internationally, reporting under it makes financial information accessible and understandable in multiple countries.
The IFRS system can be used by any business based in a country that permits its use, but its advantages are especially suited to real estate development, a highly competitive industry that often involves international dealings.
Here are a few reasons to consider using IFRS in reporting for your real estate company:
- A Sharp Competitive Edge
Transparency and accountability can put you ahead of the competition. The IFRS reporting style requires that companies provide information about their finances that holds them accountable and maintains transparency.
These informative, thorough reporting standards can make your company more appealing to investors because they’ll be able to stay well-informed about your company’s financial health and easily compare it on an international scale.
Since IFRS standards aren’t used by all real estate enterprises, adopting them is a way to stand out and provide benefits to investors that not everyone can offer.
- Simplified Reporting
Since IFRS is international, adopting it may allow you to streamline the process of financial reporting.
If your company is working internationally under other reporting systems, bookkeeping will likely involve reconciling financial information under multiple sets of standards. The more your company expands, the more information must be documented, and the more convoluted reporting can become.
IFRS can save you this potential mess by allowing you to report your company’s financial performance under a single set of standards.
Transitioning to IFRS is also an opportunity to clean up the information management systems that your company uses for financial data and to improve the entire accounting process.
- Entry to the Global Marketplace
As you expand your real estate business across oceans and borders, reporting under IFRS can help you gain entrance to new countries’ economies.
Foreign investors may benefit from the ability to evaluate your company’s finances based on an internationally standardized and accepted system, and it can also be a good show of credibility.
IFRS can also benefit your company internally by helping your accounting team compare performance with competitors in foreign countries.
Additionally, although IFRS is an advanced and thorough set of standards, it’s not only beneficial for large corporations — if your company is just beginning its international expansion and is defined as an SME, you can use a tailored version of IFRS. It is shorter than the full set of standards and is simplified in multiple sections to omit rules and requirements that don’t apply to SMEs.
- Principles-Based Accounting: Flexibility and Clarity
Many sets of reporting standards use rules-based accounting, which can be constraining and muddled. Principles-based accounting, the category IFRS falls under, is popular because it goes by somewhat broad rules that allow accountants to follow guidelines that make sense for their company’s business, rather than conform their company’s business to a strict set of financial reporting rules.
Transitioning to IFRS can be an intensive process if your real estate business has an extensive global presence. The differences in reporting between IFRS and other reporting standards can have various implications to prepare for in different areas of the real estate industry: leases, sales, and property, plant, and equipment may call for different reporting under IFRS.
However, IFRS offers a range of benefits, including (but not limited to) the four listed reasons to switch.
If you feel your company is ready for IFRS, there are a few questions you can ask to guide the process:
- Have your competitors made the switch to IFRS?
- How would the conversion to IFRS affect your company’s access to capital and funding?
- Are your company’s accountants and managers knowledgeable about IFRS?
- Which set or sets of generally accepted accounting principles does your company report under now?
It can also be helpful to work with a professional adviser who can help with training, converting, and reporting under IFRS.
Depending on what’s best for your company, you can implement an all-in approach, which enacts the transition on a fairly brief timetable, or a tiered approach, which takes longer and spreads out the labor and costs of the transition.
A successful switch to IFRS can show competitors and investors that you run a well-organized and innovative company, and it can show you important information about your company’s financial health and standing in the global economy — after implementing it, you may find it’s only the beginning of your company’s growth beyond national borders.