What Benefits Could Adopting the
International Financial Reporting Standards (IFRS)
Have for the Real Estate Sector?
A transition towards the IFRS implies more than just reorganizing account catalogs and technical accounting and financial information matters. Their adoption in Mexico’s real estate sector could bring significant benefits.

The use of the IFRS gives investors greater confidence, opening more doors to international foreign capital markets. Companies themselves will have the added benefit of being more easily comparable with their competitors.

Real Estate in Mexico

Here are three actions executives in the real estate sector can carry out to help them decide if it is in their best interest to adopt the IFRS:

  1. Determine how their longevity in the industry will be impacted by converting to the IFRS. Will IFRS reporting improve the presentation of its financial performance and balance statements with investors and capital providers?
  2. Carry out an analysis of its competitors. Are its first and second-level competitors using, or planning to use, IFRS for reporting?
  3. Assess the reach it would like to have. Does the company have global operations or want to expand its international presence?
Analyze if adopting the IFRS aligns with and could be leveraged to support the company’s strategy.

When companies in the real estate sector consider the potential benefits of adopting the IFRS, the most crucial factor is selecting which accounting policies it will use to report the value of investment properties. According to the IFRS, these can be reported either at a fair market value or historical cost.

IFRS 13 defines fair value (FV) “as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” (an exit price).

It is recommended (but not mandatory) that the FV for investment properties be calculated based on a qualified and experienced independent expert’s appraisal. 

Choosing the fair value method for reporting under the IFRS can significantly impact the financial statements of companies in the real estate sector.  This means that its balance statements will likely be more aligned with the actual status of the company’s assets, meaning that its income statements will also reflect this. Each year, the fair market value price will be assessed and disclosed in its financial statements.  These reports should include information on valuation methods, cost of capital, discount rates, capitalization rates, rental and expense growth rates, the appraiser’s qualifications, and explanations of fair value conclusions, among other information.

Invest in Mexico

Fair market value could also potentially impact tax payments by providing proof of a decrease in the value of assets and treasury functions through these insights and the transparency they bring.

In addition, legal areas may be affected through debt covenants and partnership or joint venture agreements.

The appraisal, collection of supporting evidence and documentation, and filing fair market value reports require a reflective process and adequate resources for managing this critical aspect of the IFRS.

Converting to a global financial reporting model may open up access to new sources of capital. Many international lenders, global private equity firms, and international transactions require or prefer IFRS reporting. This is partly due to the increased transparency of fair value reporting and ease of comparison to other investments or companies. Consequently, these sources potentially provide new avenues for capital funding.

However, as you can see, there is no one-size-fits-all answer. Each corporation or group of companies must consider if adopting the IFRS is in its best interests depending on their specific circumstances, as this decision will affect not only accounting but also the company internally and externally.

By Maribel Olivas | Real Estate Finance Leader | American Industries Group®
Did you find this content interesting? Sign up for our monthly newsletter to receive more articles and infographics.


If you would like to find out more about this topic or are interested in receiving a complimentary business case analysis for your operation in Mexico, please fill out this form or contact us at:

US toll-free: +1 (877) 698 3905

CAN toll-free: +1 (844) 422 4922

CN Toll-free: +1 (400) 076 8899


Please note that we do not accept job applications here. If you are interested in applying for a position, please visit the following link: https://www.americanindustriesgroup.com/jobs/

Related posts

March 24, 2023
Renewable Energy: The Key to Mexico’s Nearshoring Wave
Renewable Energy: The Key to Mexico’s Nearshoring Wave
Since the beginning of globalization, companies have sought to reduce production costs in their supply chains by finding suppliers in other countries (offshoring) and diversifying suppliers, […]
March 10, 2023
Mexico Manufacturing
Mexico Manufacturing: What You Need to Know About the IMMEX Program
The Mexican Manufacturing, Maquila and Export Services Industry Program (IMMEX) is a government initiative that was launched on November 1, 2006. The program is designed to […]
February 16, 2023
Shelter Services in Mexico
What You Need to Know About Shelter Services in Mexico & the Site Selection Process
To become more competitive and ensure business continuity in light of recent disruptions, companies across the globe are developing strategies to regionalize supply chains and reduce […]
February 7, 2023
North American Leaders’ Summit 2023: The Importance of Manufacturing in Mexico
North American Leaders’ Summit 2023: The Importance of Manufacturing in Mexico
On January 9-10, 2023, United States President Joe Biden and Canadian Prime Minister Justin Trudeau met with Mexican President Andrés Manuel López Obrador in Mexico City […]
January 31, 2023
Reshoring to Mexico: Manufacturing Trend for 2023
Reshoring to Mexico: Manufacturing Trend for 2023
A combination of geopolitical factors in recent years, including trade wars, tariffs and supply chain disruptions, have caused companies to analyze their supply chains and sourcing […]
January 25, 2023
Mexico’s Medical Device Industry
4 Reasons Mexico’s Medical Device Industry is Attracting Interest, Investment
The global medical devices industry is projected to reach up to USD 612.7 billion by 2025, which will be a solid 30% increase between 2020 and […]