Property held by a company reporting under IFRS is measured for the accounts, usually at fair value as defined by IFRS 13, and the figure has to survive audit. This page sets out what the standard asks for.
What fair value means under IFRS 13
IFRS 13 defines fair value as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. It is an exit price, judged from the market participant’s perspective rather than the owner’s: not cost, and not what the asset is worth to you in your own business.
The Red Book basis of market value — the estimated amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and without compulsion — comes from the International Valuation Standards. For property the two are aligned in practice, and a market value figure will normally satisfy an IFRS 13 measurement. That does not remove the need to say which basis you are on: the report must state it expressly, confirm the two are consistent for the asset, and set out every assumption applied. See our page on Red Book valuations.
Where property fair value appears in the accounts
The requirement comes from the standard governing the asset; IFRS 13 says how fair value is measured.
- Investment property — IAS 40. Held to earn rentals or for capital appreciation. The entity elects the fair value model, remeasuring at each reporting date through profit or loss, or the cost model — which does not avoid a valuation, since fair value is still disclosed in the notes.
- Property, plant and equipment — IAS 16. Owner-occupied property under the revaluation model is carried at fair value at the date of revaluation, less subsequent depreciation and impairment, with movements normally through other comprehensive income.
- Assets held for sale — IFRS 5. Measured at the lower of carrying amount and fair value less costs to sell.
- Business combinations — IFRS 3. Property acquired with a business is recognised at fair value at the acquisition date, which feeds goodwill.
Tell us which applies: it affects the scope and, in an acquisition, how the asset is identified.
The fair value hierarchy and Level 3
IFRS 13 ranks inputs into three levels; a measurement takes the level of the lowest input significant to it.
| Level | Inputs | Typical for property? |
|---|---|---|
| Level 1 | Quoted prices in active markets for identical assets | No — no two properties are identical |
| Level 2 | Other observable inputs, direct or indirect | Rarely |
| Level 3 | Unobservable inputs | Yes — the normal position |
Property sits at Level 3 because its significant inputs — rental value, yield, build costs, and the adjustments made to each comparable — are judgement applied to imperfect evidence. That does not make them unreliable. It makes them disclosable.
Level 3 carries the fullest disclosure in the standard: the technique and any change in it, quantitative information about the significant unobservable inputs, a reconciliation of opening to closing balance, the entity’s valuation processes, and the sensitivity of the measurement to those inputs. We set our reports out so those notes can be drafted from them.
Highest and best use
Fair value of a non-financial asset is measured on the basis of its highest and best use by market participants — the use that is physically possible, legally permissible and financially feasible. Current use is presumed to be that use unless the market indicates otherwise.
The presumption is rebuttable, and in Cyprus it is rebutted more often than owners expect: a low building on a plot whose zone now permits a much higher building factor may be worth more for redevelopment than as it stands. Where the two differ, fair value reflects the alternative use net of the cost and risk of getting there, and the entity must disclose that fact and why the asset is used otherwise.
The valuation date must be the reporting date
Fair value is measured at the measurement date, which for the accounts is the reporting date. The valuation date in the report must therefore be your year end, not the date of inspection.
This is where instructions go wrong. A valuation carried out in September and used for a 31 December balance sheet is not a measurement at the reporting date, and the auditor is entitled to challenge it — successfully, if the market has moved or the property has been let, vacated or extended since. Instruct in good time and have the report drawn to the reporting date. Where there is material valuation uncertainty, the Red Book requires it to be stated clearly.
What the auditor will ask for
The auditor tests management’s estimate and uses the valuation as evidence. Expect them to ask for:
- Competence — membership, registration and experience of that asset type and market;
- Independence — confirmed objectivity, with any prior involvement disclosed;
- Basis and date — fair value under IFRS 13, at the reporting date;
- Inputs and sources — comparables, rents, yields and costs, and where each came from;
- Assumptions — every assumption and special assumption, anything taken on trust, and any material uncertainty;
- Sensitivity — how the figure moves with those inputs;
- A report that can go on the audit file — properly addressed, with the terms of engagement, scope and restrictions on use set out.
We answer audit queries directly where you ask us to. See also our page for professionals.
Independence and threats to it
Independence is part of the evidence, not a formality. The usual threats:
- Self-review — the same firm advised on the acquisition, acted as agent, or gave a figure management has relied on.
- Fee dependence — a valuer taking a substantial part of income from one client is exposed to pressure, whether or not it is applied.
- Familiarity — a long unbroken run of valuations of one portfolio by one individual, which is why some entities rotate the valuer.
- Advocacy — acting for the entity in a dispute over the asset is incompatible with valuing it for the accounts.
We disclose rather than assume. Before accepting an instruction we tell you of any previous involvement with the property, the entity or the other parties, and record it in the engagement terms and the report. Where we cannot properly act, we say so then.
Scope, information and how often to revalue
For each property we ask for the title deed or contract of sale, the planning and building permits and any final approval, the approved drawings and areas, and for income-producing assets the leases, rent roll, arrears, service charges and planned capital expenditure. Where a document does not exist, tell us: a valuation on a stated assumption is auditable, one on a silent guess is not.
Under the IAS 40 fair value model, fair value is measured at every reporting date, so a valuation is needed each year and at any interim date. Under the IAS 16 revaluation model, revaluations are made with sufficient regularity that carrying amount does not differ materially from fair value — annually for volatile assets, on a longer cycle for stable ones. Scales are on our fees page.
Instructing us
Michael Efstathiou BSc(Hons) MRICS has practised as a valuer in Cyprus since 2012. He is registered with ETEK under Law 224/1990, the legal precondition to valuing property in Cyprus, is a member of RICS, and works to RICS Valuation — Global Standards (published December 2024, effective 31 January 2025). Terms of engagement, the basis of value, the reporting date and the fee are agreed in writing beforehand.
Send us the property details, your reporting date and the standard the measurement falls under, and we will confirm the scope, the fee and the timetable in writing. Our contact page has the details.
[email protected] · +357 25254222 · mobile +357 96569477