Starting with the 1st January 2005 a compulsory application of International Accounting Standards will result in many cases in necessity to assess a fair value of particular assets. In this respect, a role of qualified charted surveyor and a need for their services increase substantially.

As at the 1st January 2005 amendments to the Accounting Law of 29th September 1994 came into force. Based on them, the International Accounting Standards (hereinafter ,,IAS") (called also the International Financial Reporting Standards) must be compulsory applied to consolidated financial statements prepared by the companies noted at the public stock exchange and banks.

Who Has to Apply the IAS?

Additionally, the IAS may be applied to consolidated financial statements prepared by:

1. Issuers of the stocks applying for admittance to public stock exchange in one of the European Economic Area's (hereinafter called "EEA") markets including the European Union, Iceland, Lichtenstein and Norway.
   
   
2. Issuers of the stocks admitted to public stock exchange in one of the EEA's markets.
   
   
3. Entities creating capital group, where the dominating entity prepares consolidated financial statements according to IAS. This means that the entities providing data to consolidated financial statements, in particular dependent and interdependent, should apply the unified methods for valuation of assets and liabilities and prepare financial statements according to approved internal accounting policy of dominating entity unless it is not possible due to serious reasons.

Obligation to Assess Fair Value

The IAS prescribe the accounting treatment, assessment, presentation and disclosures for majority of items in the balance sheet. In some cases, the application of IAS requires assessment of fair value of particular assets that should be carried out by the qualified chartered surveyor. In particular, it would apply to the following situations:

1. IAS 16 ,,Property, Plant and Equipment" recommends, in a case of recognition of property, plant and equipment at cost, to disclose in a financial statement their fair values if they differ substantially from the balance sheet values.
   
   
2. According to IAS 16, if property, plant and equipment are disclosed in revalued amounts, their fair values must be determined on the balance sheet date. The choice of measurement should be applied consistently to entire class of property, plant and equipment. A market value constitutes usually a fair value of plots and buildings, that is determined based on the valuation made by chartered surveyors. Also a market value constitutes usually a fair value of fixtures and fittings, and if it is not possible, it is determined as depreciated replacement cost.
   
   
3. According to IAS 17 ,,Leases", at inception of the lease, a finance lease should be recognized as an asset and liability in the lessee's balance sheet at the lower of:
   
   
• The fair value of the leased asset, and
  
  
• The present value of the minimum lease payments.
  
  Generally, accounting principles for sale and lease-back transactions determined in IAS 17 require assessing fair value of the lease subject.
  
  
4. MSSF 3 ,,Merger of Business Entities" requires that at inception, acquisitions of fixed assets under merger should be assessed at fair value, event if it is higher that the acquisition value.
   
   
5. IAS 36 ,,Impairment of Assets" recommends that as at balance sheet date the companies should assess whether there are conditions indicating that the assets may be impaired. If this is a case, the recoverable amount of the asset impaired should be assessed that constitute the higher of its fair value less costs to sell and value in use.
   
   
6. IAS 40 ,,Investment Property" allows, subsequent to initial recognition, recognising investment property either at:
   
   
• Cost, less accumulated depreciation and any accumulated impairment losses, as prescribed by IAS 16 Property, Plant and Equipment, or
  
  
• Fair value.
  
  Still, the entity applying initial cost recognition should disclose the fair value of investment properties in its financial statement. The initial recognition model should be applied consistently to all investment property.

For example, investment properties include:

• Land owned due to long-term increase in its value, and not to be sold after a short period of time within a regular business activity carried out by the entity;
  
  
• Land the future use of which remains undetermined. (If the entity does not determine that it will use this land as the property, or after a short period of time, it will be assigned to sale within a regular business activity, it is assumed that the land is kept due to increase in its value).
  
  
• Building owned by the entity or acquired within financial lease, that is subject to operational lease under one or a larger number of contracts;
  
  
• Building that is currently not occupied (vacant), and that was assigned to be subject to operational lease under one or a larger number of contracts.

Summing up, many companies applying IAS are obliged to present particular items of the balance sheet at their fair values. As for a number of accountants it is difficult to assess a fair value, a role of qualified chartered surveyors and a need for their professional services will substantially increase.

Roman Fortuna MRICS
Chartered Surveyor