Date: 2018-03-15Category: Not ApplicableState: Union GovernmentCountry: Europe
Commission Regulation (EU) 2018/400 of 14 March 2018 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards International Accounting Standard (IAS) 40 (Text with EEA relevance. )
Executive Summary:
Commission Regulation (EU) 2018/400 amends Regulation (EC) No 1126/2008 regarding International Accounting Standard (IAS) 40, concerning investment property. The amendments clarify the conditions for reclassifying property to or from the investment property category. Companies must apply these amendments, at the latest, from the start of their first financial year beginning on or after January 1, 2018. The regulation entered into force on March 15, 2018.
Key Points / Main Content:
Amendments to IAS 40:
Clarification of Property Transfers:
A property is transferred to or from investment property only when there is a change in use, supported by evidence.
A change in management's intentions alone is insufficient evidence of a change in use.
Examples of evidence include commencement/end of owner-occupation, commencement of development for sale, or inception of an operating lease.
Disposal or Redevelopment:
If an entity decides to dispose of an investment property without development, it remains classified as investment property until derecognized.
Similarly, redeveloping an existing investment property for continued use as investment property does not warrant reclassification as owner-occupied property.
Transitional Provisions:
The amendments apply to changes in use occurring on or after the start of the annual reporting period when the entity first applies the amendments.
At the initial application date, entities must reassess and reclassify property based on existing conditions, applying paragraphs 7-14.
Retrospective application is permitted only if possible without using hindsight, in accordance with IAS 8.
If reclassification occurs, apply paragraphs 59-64, treating the initial application date as the change in use date, and adjust the opening retained earnings balance.
Reclassified amounts must be disclosed as part of the investment property reconciliation.
Effective Date:
The amendments apply to annual periods beginning on or after January 1, 2018.
Earlier application is permitted, provided it is disclosed.
Impact Analysis:
Companies Applying IAS 40:
Impact: Must implement the clarified criteria for reclassifying investment property and ensure compliance with the transitional provisions. This may affect financial reporting and require reassessment of property classifications.
Action Required: Review current property classifications, update accounting policies, and ensure compliance with the amended IAS 40 for financial years beginning on or after January 1, 2018.
European Financial Reporting Advisory Group (EFRAG):
Impact: EFRAG's consultation influenced the Commission's conclusion that the amendments meet adoption criteria.
Action Required: Continue to advise the Commission on international accounting standards.
Accounting Regulatory Committee:
Impact: The measures in the Regulation are in accordance with the Committee's opinion.
Action Required: Monitor the implementation and impact of the amendments.
Key Entities Referenced
European Union: A political and economic union of member states located primarily in Europe.
European Commission: An institution of the European Union, responsible for proposing legislation, implementing decisions, upholding the EU treaties and managing the day-to-day business of the EU.
Treaty on the Functioning of the European Union: One of the primary treaties of the European Union, outlining the scope of EU powers.
European Parliament: The parliamentary body of the European Union that, together with the Council of the European Union, exercises legislative function.
International Accounting Standards IAS 40: A specific International Accounting Standard concerning Investment Property.
International Accounting Standards Board IASB: The independent, private-sector body responsible for developing and approving International Financial Reporting Standards (IFRS).
Regulation EC No 1606/2002: A European Union regulation on the application of international accounting standards.
Brussels: The capital of Belgium and a major administrative centre for the European Union, where the regulation was signed.
15.3.2018 EN Official Journal of the European Union L 72/13
COMMISSION REGULATION (EU) 2018/400
of 14 March 2018
amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in
accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as
regards International Accounting Standard (IAS) 40
(Text with EEA relevance)
THE EUROPEAN COMMISSION,
Having regard to the Treaty on the Functioning of the European Union,
Having regard to Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the
application of international accounting standards (1), and in particular Article 3(1) thereof,
Whereas:
(1) By Commission Regulation (EC) No 1126/2008 (2) certain international standards and interpretations that were
in existence at 15 October 2008 were adopted.
(2) On 8 December 2016, the International Accounting Standards Board (IASB) published the amendments to Inter
national Accounting Standard (IAS) 40 Investment Property. The amendments clarify when a company is allowed to
reclassify a property to (or from) the ‘investment property’ category.
(3) Following the consultations with the European Financial Reporting Advisory Group, the Commission concludes
that the amendments to International Accounting Standard (IAS) 40 meet the criteria for adoption set out in
Article 3(2) of Regulation (EC) No 1606/2002.
(4) Regulation (EC) No 1126/2008 should therefore be amended accordingly.
(5) The measures provided for in this Regulation are in accordance with the opinion of the Accounting Regulatory
Committee,
HAS ADOPTED THIS REGULATION:
Article 1
In the Annex to Regulation (EC) No 1126/2008, International Accounting Standard (IAS) 40 Investment Property is
amended as set out in the Annex to this Regulation.
Article 2
Each company shall apply the amendments referred to in Article 1, at the latest, as from the commencement date of its
first financial year starting on or after 1 January 2018.
Article 3
This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the
European Union.
(1) OJ L 243, 11.9.2002, p. 1.
(2) Commission Regulation (EC) No 1126/2008 of 3 November 2008 adopting certain international accounting standards in accordance
with Regulation (EC) No 1606/2002 of the European Parliament and of the Council (OJ L 320, 29.11.2008, p. 1).L 72/14 EN Official Journal of the European Union 15.3.2018
This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Brussels, 14 March 2018.
For the Commission
The President
Jean-Claude JUNCKER15.3.2018 EN Official Journal of the European Union L 72/15
ANNEX
Transfers of Investment Property
(Amendments to IAS 40)
Amendments to IAS 40 Investment Property
Paragraphs 57–58 are amended.
TRANSFERS
57 An entity shall transfer a property to, or from, investment property when, and only when, there is
a change in use. A change in use occurs when the property meets, or ceases to meet, the definition of
investment property and there is evidence of the change in use. In isolation, a change in management's
intentions for the use of a property does not provide evidence of a change in use. Examples of evidence
of a change in use include:
(a) commencement of owner-occupation, or of development with a view to owner-occupation, for
a transfer from investment property to owner-occupied property;
(b) commencement of development with a view to sale, for a transfer from investment property to
inventories;
(c) end of owner-occupation, for a transfer from owner-occupied property to investment property; and
(d) inception of an operating lease to another party, for a transfer from inventories to investment
property.
(e) [deleted]
58 When an entity decides to dispose of an investment property without development, it continues to treat the
property as an investment property until it is derecognised (eliminated from the statement of financial position)
and does not reclassify it as inventory. Similarly, if an entity begins to redevelop an existing investment property
for continued future use as investment property, the property remains an investment property and is not
reclassified as owner-occupied property during the redevelopment.
…
Paragraphs 84C–84E and their related heading, and paragraph 85G, are added.
TRANSITIONAL PROVISIONS
…
Transfers of investment property
84C Transfers of Investment Property (Amendments to IAS 40), issued in December 2016, amended paragraphs 57–58.
An entity shall apply those amendments to changes in use that occur on or after the beginning of the annual
reporting period in which the entity first applies the amendments (the date of initial application). At the date of
initial application, an entity shall reassess the classification of property held at that date and, if applicable,
reclassify property applying paragraphs 7–14 to reflect the conditions that exist at that date.
84D Notwithstanding the requirements in paragraph 84C, an entity is permitted to apply the amendments to
paragraphs 57–58 retrospectively in accordance with IAS 8 if, and only if, that is possible without the use of
hindsight.
84E If, in accordance with paragraph 84C, an entity reclassifies property at the date of initial application, the entity
shall:
(a) account for the reclassification applying the requirements in paragraphs 59–64. In applying paragraphs 59–64,
an entity shall:
(i) read any reference to the date of change in use as the date of initial application; and
(ii) recognise any amount that, in accordance with paragraphs 59–64, would have been recognised in profit
or loss as an adjustment to the opening balance of retained earnings at the date of initial application.L 72/16 EN Official Journal of the European Union 15.3.2018
(b) disclose the amounts reclassified to, or from, investment property in accordance with paragraph 84C. The
entity shall disclose those amounts reclassified as part of the reconciliation of the carrying amount of
investment property at the beginning and end of the period as required by paragraphs 76 and 79.
EFFECTIVE DATE
…
85G Transfers of Investment Property (Amendments to IAS 40), issued in December 2016, amended paragraphs 57–58
and added paragraphs 84C–84E. An entity shall apply those amendments for annual periods beginning on or
after 1 January 2018. Earlier application is permitted. If an entity applies those amendments for an earlier period,
it shall disclose that fact.