Disclosure Requirements for Investment Properties Measured at Fair Value in Danish B- and C-Companies' Annual Reports

Abstract

With the amendment of the Danish Financial Statement Act in 2015, the government increased the note requirement for investment properties measured at fair value. This was done to address the inherent uncertainty in the application of fair values and to increase the accounting user's insight into the companies' statements of fair value. This thesis seeks to examine what information Danish B and C companies' annual reports must contain regarding investment properties measured at fair value according to ÅRL § 38. The purpose of this thesis is to examine the current level of information required to get an indication of current practice. Similarly, the thesis aims to discuss whether the current information level adds sufficient value to the accounting user. Companies that recognize and measure investment properties at fair value in accordance with ÅRL § 38 are subject to certain disclosure requirements for the annual accounts. When the Danish Financial Statement Act was amended in 2015, the note requirement was introduced by ÅRL § 58a, which states that if the value is calculated using valuation models and techniques, information must be provided on key assumptions. There is a corresponding requirement to inform the accounting user about the valuation model used. In Danish practice, the primary valuation models are the return-based model and the DCF-model. The fair value is calculated based on future expectations, which increases the accounting user's need for key assumptions in the calculation. The following analysis is based on a random sample of publicly available Danish B and C companies' annual reports. The sample is limited to companies with investment properties as their primary activity, in order to examine the current level of information. The analysis showed that the companies largely follow the minimum requirements for the annual accounts. It is concluded, however, that the current level of information does not add sufficient value to the accounting user, in particular due to the high inconsistency in which information appears and that the use of certain information is low. The comparability across companies is particularly challenging. It is questioned by the author whether a more detail-oriented approach to the legislation would be beneficial to the level of information in the annual reports.