ROur Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
21 March 2016Mr Hans HoogervorstInternational Accounting Standards Board30 Cannon StreetLondon EC4M 6XHUnited KingdomDear Hans,IASB Exposure Draft ED/2015/9 Transfers of Investment Property (Proposedamendment to IAS 40)
The Hong Kong Institute of Certified Public Accountants is the only body authorised bylaw to set and promulgate standards relating to financial reporting, auditing, and ethics forprofessional accountants, in Hong Kong. We are grateful for the opportunity to provideyou with our comments on ED/2015/9.We welcome the IASB's efforts to address the diversity in practice regarding transfers ofinvestment properties under construction to, or from, inventories when there is a changein use. However, we are concerned that the proposed amendments do not go far enoughin resolving the issue.We recommend that the IASB:
provides more guidance on how the principle of paragraph 57 of IAS 40 should beapplied from the perspective of investment properties under construction by addingexamples of evidence necessary to support a change in classification; and clarifies that the current example provided in paragraph 57(d) of IAS 40 applies totransfers of completed investment properties.In addition, we consider that the proposed amendments should be applied consistentlywith the transition provision in paragraph 85B of IAS 40. That is, the proposedamendments should be applied prospectively and entities should be permitted to applythe proposed amendment to investment properties under construction from any datebefore the effective date of the amendments provided that the fair values of investmentproperties under construction were measured at those dates.Our responses to the questions raised in ED/2015/9 are explained in more detail in theAppendix.If you have any questions regarding the matters raised in this letter, please contact me orWinnieChan,AssociateDirectoroftheStandardSettingDepartment(winniechan@hkicpa.org.hk).Yours sincerely,Christina NgHead of Financial Reporting, Standard Setting DepartmentCN/WCEnclAPPENDIXDetailed comments on ED/2015/9 Transfers of Investment Property (Proposedamendment to IAS 40)
Question 1—Proposed amendmentThe IASB proposes to amend paragraph 57 of IAS 40 to:
(a) state that an entity shall transfer a property to, or from, investmentproperty when, and only when, there is evidence of a change in use. Achange in use occurs when the property meets, or ceases to meet, thedefinition of investment property.(b) re-characterise the list of circumstances set out in paragraph 57(a)–(d) asa non-exhaustive list of examples of evidence that a change in use hasoccurred instead of an exhaustive list.Do you agree? Why or why not?We welcome the IASB's efforts to address the diversity in practice arising from theguidance in IAS 40.57, which as currently written is not sufficiently clear to be appliedin practice, especially for transfers of properties that are still under construction ordevelopment. IAS 40.57(d) states that the reclassification can only be made when, andonly when, there is a change in use evidenced by the commencement of an operatinglease to another party. In practice, we are aware that some entities view'commencement of a lease' as when the property is ready for use by the lessee withreference to the definition in paragraph 4 of IAS 17 Leases. As leases do not typicallycommence until the investment property is completed, it therefore appears thatIAS 40.57 does not provide for transfers of property under construction or developmentfrom inventory (being constructed for sale) to investment property (being constructedfor rental or capital appreciation).We support the IASB in addressing this issue through narrow-scope amendments toIAS 40. However, we are concerned that the proposed amendments do not go farenough in resolving the issue.As compared to completed investment properties, investment properties underconstruction are not ready for its intended use (i.e. for rental or capital appreciation, orboth), and are therefore subject to change in management's intention in response tofluctuations in property and capital markets. However, we note that paragraph BC3 ofED/2015/9 states that a change in management's intention alone would not besufficient evidence for reclassification and would need to be supported by an actualchange in use of the property. Accordingly, the proposed amendment as currentlywritten would not be helpful in resolving the current application issue.We strongly recommend that the IASB provides clarification on how the principle ofparagraph 57 should be applied in situations where the properties are underdevelopment or construction. For properties under development, examples of evidencethat support a change in use would include commencing of leasing activities and leasenegotiations with potential tenants; modifying the internal structure, design or fit out ofthe properties under construction; and obtaining approval from relevant regulatorybodies for a change in the use of the property under consideration.In addition, it would be helpful if the IASB specifies clearly that the example provided inparagraph 57(d) of IAS 40 applies to transfers of completed investment properties. Weconsider that it would be unreasonable to expect that leases can commence while theproperty is still under construction. This is in contrast to our example in the paragraphabove, which describes the commencement of leasing activities that occur prior tocommencing a lease.We note that paragraph BC3 states, "…a change in use would involve: (a) anassessment of whether a property qualifies as an investment property; supported by (b)
evidence that a change in use has occurred, instead of merely being a change inmanagement's intention". It is clear from paragraph BC3 that both the definition ofinvestment property and evidence of change (excluding management intention) isrequired to qualify for transfer. However, we find that only paragraph BC3(a) is clearlystated in the body of the standard (paragraph 57). In terms of drafting of paragraph 57,the requirements for transfer would be much clearer if paragraph 57 follows theconstruction of paragraphs BC3(a) and BC3(b).Question 2—Transition provisionsThe IASB proposes retrospective application of the proposed amendment toIAS 40. Do you agree? Why or why not?We consider that applying the proposed amendments retrospectively using the fairvalue model without the use of hindsight would be challenging.We therefore consider that the proposed amendments should be applied consistentlywith the transition provision in paragraph 85B of IAS 40. That is, the proposedamendments should be applied prospectively and entities should be permitted to applythe proposed amendment to investment properties under construction from any datebefore the effective date of the amendments provided that the fair values of investmentproperties under construction were measured at those dates.If the proposed amendments were to be applied prospectively, we consider that itshould apply to transfers of properties under construction that takes place on or afterthe effective date of the proposed amendments.~ End ~
IASB Exposure Draft ED/2015/9 Transfers of Investment Property (Proposed amendment to IAS 40)
下载原件ROur Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
21 March 2016Mr Hans HoogervorstInternational Accounting Standards Board30 Cannon StreetLondon EC4M 6XHUnited KingdomDear Hans,IASB Exposure Draft ED/2015/9 Transfers of Investment Property (Proposedamendment to IAS 40)
The Hong Kong Institute of Certified Public Accountants is the only body authorised bylaw to set and promulgate standards relating to financial reporting, auditing, and ethics forprofessional accountants, in Hong Kong. We are grateful for the opportunity to provideyou with our comments on ED/2015/9.We welcome the IASB's efforts to address the diversity in practice regarding transfers ofinvestment properties under construction to, or from, inventories when there is a changein use. However, we are concerned that the proposed amendments do not go far enoughin resolving the issue.We recommend that the IASB:
provides more guidance on how the principle of paragraph 57 of IAS 40 should beapplied from the perspective of investment properties under construction by addingexamples of evidence necessary to support a change in classification; and clarifies that the current example provided in paragraph 57(d) of IAS 40 applies totransfers of completed investment properties.In addition, we consider that the proposed amendments should be applied consistentlywith the transition provision in paragraph 85B of IAS 40. That is, the proposedamendments should be applied prospectively and entities should be permitted to applythe proposed amendment to investment properties under construction from any datebefore the effective date of the amendments provided that the fair values of investmentproperties under construction were measured at those dates.Our responses to the questions raised in ED/2015/9 are explained in more detail in theAppendix.If you have any questions regarding the matters raised in this letter, please contact me orWinnieChan,AssociateDirectoroftheStandardSettingDepartment(winniechan@hkicpa.org.hk).Yours sincerely,Christina NgHead of Financial Reporting, Standard Setting DepartmentCN/WCEnclAPPENDIXDetailed comments on ED/2015/9 Transfers of Investment Property (Proposedamendment to IAS 40)
Question 1—Proposed amendmentThe IASB proposes to amend paragraph 57 of IAS 40 to:
(a) state that an entity shall transfer a property to, or from, investmentproperty when, and only when, there is evidence of a change in use. Achange in use occurs when the property meets, or ceases to meet, thedefinition of investment property.(b) re-characterise the list of circumstances set out in paragraph 57(a)–(d) asa non-exhaustive list of examples of evidence that a change in use hasoccurred instead of an exhaustive list.Do you agree? Why or why not?We welcome the IASB's efforts to address the diversity in practice arising from theguidance in IAS 40.57, which as currently written is not sufficiently clear to be appliedin practice, especially for transfers of properties that are still under construction ordevelopment. IAS 40.57(d) states that the reclassification can only be made when, andonly when, there is a change in use evidenced by the commencement of an operatinglease to another party. In practice, we are aware that some entities view'commencement of a lease' as when the property is ready for use by the lessee withreference to the definition in paragraph 4 of IAS 17 Leases. As leases do not typicallycommence until the investment property is completed, it therefore appears thatIAS 40.57 does not provide for transfers of property under construction or developmentfrom inventory (being constructed for sale) to investment property (being constructedfor rental or capital appreciation).We support the IASB in addressing this issue through narrow-scope amendments toIAS 40. However, we are concerned that the proposed amendments do not go farenough in resolving the issue.As compared to completed investment properties, investment properties underconstruction are not ready for its intended use (i.e. for rental or capital appreciation, orboth), and are therefore subject to change in management's intention in response tofluctuations in property and capital markets. However, we note that paragraph BC3 ofED/2015/9 states that a change in management's intention alone would not besufficient evidence for reclassification and would need to be supported by an actualchange in use of the property. Accordingly, the proposed amendment as currentlywritten would not be helpful in resolving the current application issue.We strongly recommend that the IASB provides clarification on how the principle ofparagraph 57 should be applied in situations where the properties are underdevelopment or construction. For properties under development, examples of evidencethat support a change in use would include commencing of leasing activities and leasenegotiations with potential tenants; modifying the internal structure, design or fit out ofthe properties under construction; and obtaining approval from relevant regulatorybodies for a change in the use of the property under consideration.In addition, it would be helpful if the IASB specifies clearly that the example provided inparagraph 57(d) of IAS 40 applies to transfers of completed investment properties. Weconsider that it would be unreasonable to expect that leases can commence while theproperty is still under construction. This is in contrast to our example in the paragraphabove, which describes the commencement of leasing activities that occur prior tocommencing a lease.We note that paragraph BC3 states, "…a change in use would involve: (a) anassessment of whether a property qualifies as an investment property; supported by (b)
evidence that a change in use has occurred, instead of merely being a change inmanagement's intention". It is clear from paragraph BC3 that both the definition ofinvestment property and evidence of change (excluding management intention) isrequired to qualify for transfer. However, we find that only paragraph BC3(a) is clearlystated in the body of the standard (paragraph 57). In terms of drafting of paragraph 57,the requirements for transfer would be much clearer if paragraph 57 follows theconstruction of paragraphs BC3(a) and BC3(b).Question 2—Transition provisionsThe IASB proposes retrospective application of the proposed amendment toIAS 40. Do you agree? Why or why not?We consider that applying the proposed amendments retrospectively using the fairvalue model without the use of hindsight would be challenging.We therefore consider that the proposed amendments should be applied consistentlywith the transition provision in paragraph 85B of IAS 40. That is, the proposedamendments should be applied prospectively and entities should be permitted to applythe proposed amendment to investment properties under construction from any datebefore the effective date of the amendments provided that the fair values of investmentproperties under construction were measured at those dates.If the proposed amendments were to be applied prospectively, we consider that itshould apply to transfers of properties under construction that takes place on or afterthe effective date of the proposed amendments.~ End ~