Indregning og måling af investeringsejendomme i en krisetid: Informationsniveauet i børsnoterede ejendomsselskabers årsrapporter

Henriette Bang Nielsen

Student thesis: Master thesis


The world, including Denmark, has since 2008 experienced one of the worst financial crises in history. The financial crisis has had a huge impact on the real estate market in Denmark, which during the years until 2008 had been characterized as a low risk market with steady reasonable income. Suddenly, the real estate market became inactive, which resulted in a high degree of illiquidity on the market and lower real estate prices. These circumstances challenges the measurement of fair value and information regarding investment properties recognized in the financial statements, for which reason it has been interesting to analyze whether the level of information in the annual statement of stock listed real estate companies have changed in the period 2007 to 2011, due to the financial crises. The starting point of this report is to understand the financial crisis and the reason for the effect on especially the real estate market and consequently the investment properties. The crisis can be traced back to 11 September 2001, but reach the top in 2008 where Lehman Brothers as one of the biggest financial institutions in USA went bankruptcy. This started an avalanche of events, which resulted in the financial crisis as we know today. One of the events was that the loan market froze and this hit the real estate market as a hammer, as most real estate companies have a significant share of foreign capital in their balance. The objective of this report is to analyze the level of information in the annual statements for Danish stock listed companies regarding investment properties. Danish stock listed companies are required to comply with the Danish Executive Order regarding IFRS, which states that IFRS are to be followed and supplemented with a few Danish requirements to components in the financial statements such as a management statement. The accounting theoretical chapters start with a short description of the structure of IASB which establishes the IFRS standards including a description of the conceptual framework for financial reporting. IAS 40 Investment Property prescribes the accounting treatment of investment properties and should be applied to in the recognition, measurement and disclosure of investment property. Firstly, IAS 40 defines investment property as property held to earn rentals and/or capital gains. Investment Property is recognized as an asset when it is probably that future economic benefits will flow to the entity and initial cost can be measured reliably. The measurement at recognition of an investment property is defined as a cost. Measurement after recognition of the investment properties can either be done by a fair value model or a cost model. It is assessed that the fair value model provides the most reliable and relevant information of the investment properties. The fair value can be applied to in three different ways; comparable market transactions, expert valuations or valuation techniques, such as normal earning model and discounted cash flow projections. As a result of the financial crisis, it has been assumed that the analyzed entities would use either expert valuations or valuation techniques. Finally, the chapter describes some of the reactions the regulators have had on the current financial crisis. IASB has via an expert panel prepared a guidance to measurement and information regarding financial instrument when markets are no longer active and have issued a new standard IFRS 13 regarding measurement of fair value and finally Erhvervsstyrelsen in Denmark has issued a statement regarding recognition and measurement of investment properties based on observations done in their monitoring of financial statements. The last chapter before the analysis presents the requirements regarding presentation and information in the annual reports, with focus on the requirements regarding investment properties. A qualitative analysis of five Danish stock listed companies with significant investment properties recognized in the financial statements for the period 2007 to 2011 to analyze whether the level of information in the annual statements have changed during the financial crisis. The analysis showed that all the analyzed companies measured their investment properties at a fair value and calculated the values by different valuation models; four of five used the normal earnings model. Some of the companies used expert valuations to validate their calculations of a fair value and this is done for a part of the investment property portfolio. The analysis showed that the level of information in the financial statements were very different, Jeudan maintained a high level of information throughout the period with adequate descriptions of risks, uncertainties and the different factors in their valuation model. Tower Group and Nordicom increased the level of information in the financial statements during the period, but this is assessed to be an effect of the fact that they were criticized by Fondsrådet in a control of their financial statements. Asgaard Group and Victoria Properties have only limited information about the financial crisis, for which reason it is assessed that these two companies are not that affected by the financial crises. In general it is assessed that the companies comply with the accounting regulation in IFRS and the Danish Executive Order regarding IFRS, but it is difficult to verify the accuracy of valuations etc. based on the information given in the financial statements.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2012
Number of pages104