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With the opening up of the real-estate industry, there has been an increase in Foreign Direct Investment (FDI) in the sector. According to a report by property consultants Jones Lang LaSalle, an estimated $10 billion foreign investment is expected to enter the Indian real-estate sector in the next 1
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The opening up of the real estate industry to Foreign Direct Investment (FDI) is driving the need for Indian companies to be more transparent and compliant with global best practices in accounting.
ICAI guidance notes are less enforceable than specific accounting standards issued under IFRS and US GAAP, which are customized for industries like real estate and help bring uniformity and comparability to financial information.
The main methods discussed are: including land cost in the percentage of completion method for both land sale and construction; treating the land sale agreement as standalone; and a hybrid method that recognizes revenue and cost based on the interlinked nature of construction and sale agreements.
The hybrid method is considered more logical because it acknowledges that the risks and rewards of construction and sale agreements are interlinked, and it avoids allocating revenue for land sales at potentially unfair values.
The ICAI needs to issue industry-specific guidance for real estate accounting that includes literature and guidance on tricky issues, similar to the comprehensive approach seen in US GAAP and IFRS.
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