New accounting norms cause problems for realty sector: E&Y

MUMBAI: Indian real estate companies are experiencing initial glitches as they move to the new accounting standards- Ind-AS—based on the global IFRS, an EY research report said Thursday.

Real estate companies with a networth of more than 250 crores, will move to Ind AS in a phased approach by 2018.

A transition to Ind AS is expected to have a significant impact on real estate entities in areas across revenue, consolidation and financial instruments, the report– Gaining perspective: Ind AS considerations for Indian real estate companies—said.

“Multiple sectors, including real estate will need to address certain challenges stemming from the adoption of the new accounting standard under the Ind-AS framework. Apart from certain aspects relating to GAAP differences, financial instrument and consolidation standards are likely to pose higher challenges for real estate companies. In many instances, companies may have to renegotiate the structured financing arrangements,” said Jigar Parikh, Partner in an Indian member firm of EY Global.

Industry experts say that the new accounting standards could also impact the real estate companies’ plans to raise funds. “Also, substance based definition of control is likely to impact transactions with respect to land acquisition, REITs and joint development arrangements. However, the application of Ind AS principles will better reflect substance of the transactions and enhance investor confidence in the financial performance and position of the real estate companies,” said Parikh.

Credits ET Realty

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