The Capital Market Authority Allows Listed Companies to Use the Fair Value Model or Revalue Real Estate

Posted in

13/01/2020

The Saudi Capital Market Authority has allowed listed companies to use either the fair value or revaluation model to measure real estate, and investment properties effective January 1, 2022, while companies remain required to use the cost model to measure machinery, equipment, and intangible assets.

In a statement published on the Saudi Capital Market Authority’s website, “Tadawul,” that this authorization stems from the Capital Market Authority’s role in regulating and supervising the operations and activities of entities under its oversight, as well as regulating and monitoring the full disclosure of information related to securities and their issuers.

Provisions of the Authority’s Decision

The Authority’s decision includes:

a) Requiring listed companies to continue using the cost model to measure real estate and investment property for financial periods of the fiscal year beginning prior to 2022.

b) Allowing listed companies to use the fair value or revaluation model to measure real estate and investment property for financial periods of fiscal years beginning in or after 2022.

c) When using the fair value or revaluation model to measure real estate and investment property, listed companies must comply with the following:

1. The adoption of a fair value or revaluation model policy must be approved by a resolution of the board of directors following a recommendation from the Audit Committee in this regard.

2. The valuation of each property or investment property must be prepared by at least two appraisers, with the lower valuation being used, when preparing annual financial statements and when using the fair value model or revaluation for the first time.

3. Appraisers must be appointed by a resolution of the Board of Directors following a recommendation from the Audit Committee, and the appraisers appointed must be Fellow members of the Saudi Authority for Accredited Appraisers.

4. The Audit Committee shall monitor the valuation process and its results and report to the Board of Directors if it has any observations.

5- Any material gains or losses arising from changes in the fair value of investment properties must be disclosed in the preliminary and annual financial results announcements, where "material" is defined in accordance with paragraph 9 of Article 63 of the Rules for the Offering of Securities and Continuing Obligations.

6- Include in the preliminary and annual financial statements a reconciliation of differences in assets, net assets, net income, and comprehensive income between the use of the fair value or revaluation model and the cost model.

d) Listed companies remain required to use the cost model to measure machinery, equipment, and intangible assets for a period of five years beginning January 1, 2020, and the Authority will assess whether it is appropriate to continue requiring the use of this model upon the expiration of this period or whether it is appropriate to allow the use of the fair value or revaluation model.