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CMA: Allowing listed companies to choose the Fair Value Model or the Revaluation Model to measure Property and Investment Property starting from 1st January 2022 and continue to apply the cost model to measure Plant, Equipment, and Intangible assets

Reference to the Capital Market Authority ("the Authority")  Board of Commissioners resolution dated 15/01/1438H corresponding to 16/10/2016G, which obligated listed companies to apply the cost model to measure the property, plant, equipment, investment property, and intangible assets upon adopting the International Financial Reporting Standards (IFRS) for three years period starting from the IFRS adopting date, while continuing to abide by the disclosure requirements of the IFRS that are endorsed in Saudi Arabia, which require or encourage the disclosure of the fair value within the notes to the financial statements. The resolution indicated that the Authority will analyze the feasibility of continuing to apply the cost model upon completing the aforementioned period, or the feasibility of allowing the application of the fair value or the revaluation model.

Based on the Authority’s role in regulating and monitoring the works and activities of parties subject to the monitoring and supervision of the Authority, and its role in regulating and monitoring the full disclosures of information regarding financial securities and their issuers, the Authority announces the Board of Commissioners resolution, which  includes the following:

A. Obligating listed companies to continue to use the cost model to measure property and investment property in the financial statements prepared for financial periods within fiscal years, which start before the calendar year 2022.

B. Allowing listed companies to use the fair value model or the revaluation model to measure property, and investment property in the financial statements prepared for financial periods within fiscal years starting during the calendar year 2022 or thereafter.

C. Any listed company that chooses to use the fair value model or the revaluation model to measure property, and investment property must comply with the following:

1. The board of directors shall approve the accounting policy to adopt the fair value model or the revaluation model based on the audit committee’s recommendation in this regard.

2. Each property, or investment property shall be valued by at least two valuers when preparing the annual financial statements and when using the fair value model or the revaluation model for the first time. The company must choose the lower of  the two valuations. 

3. Appointment of the valuers shall be done by a resolution from the board of directors based on the audit committee’s recommendation. The appointed valuer must hold a fellowship designation with the Saudi Authority for Accredited Valuers.

4. The audit committee shall monitor and oversee the valuation process and its results, and shall report to the board of directors any findings or issues.

5. Any material gains or losses arising from a change in the fair value of investment properties shall be disclosed within the announcement of the interim and the annual financial results. Materiality is determined in accordance with section 9 in Article 63 of The Rules on The Offer of Securities and Continuing Obligations.

6. Preparation and presentation of a note disclosure in the interim and the annual financial statements that reconcile the differences between using the fair value model or revaluation model and using the cost model in regards to the following: (total assets, net assets, net income, and comprehensive income).

D. Obligating listed companies to continue to use the cost model to measure plant, equipment and intangible assets for five years starting from 1/1/2020. The Authority will study the appropriateness of continuing to use the cost model or allowing the use of fair value model or the revaluation model when this period ends.