The adoption of International Financial Reporting Standard (IFRS) will erode profits of real estate companies, which are suffering due to the current slowdown and falling share prices, experts said today.
The proposed convergence of Indian accounting standards with the IFRS will affect balance sheets as real estate companies take revenue from under-construction projects in their financial statements. This leads to swelling of profits.
Under the IFRS, only when an apartment is constructed and ownership rights are transferred, the transaction is recorded as revenue.
"Real estate is another sector to watch as it will be impacted significantly because of convergence with IFRS," said Jamil Khatri, head of IFRS Conversion Services division at the KPMG.
"It will impact the revenue recognition as only when the property is fully constructed and ownership handed over to a buyer that the revenue can be recorded as per IFRS."
He said the current practice of recording revenue even while the work is in progress will have to be done away with, which will certainly have some effect on their profits.
