The two main accounting standards bodies globally have made a preliminary decision to exclude all investment property lessors from a proposed major overhaul of rules for how businesses recognise lease transactions, the European Public Real Estate Association (EPRA) said on Wednesday.

London-based International Accountancy Standards Board (IASB) and America's Financial Accounting Standards Board (FASB) have decided also to exclude companies that measure their investment property at cost from the new regulations, in an extension to a previous decision to exclude those who measure their property at fair value.

'This preliminary decision represents a vindication of the representations made by EPRA and our global partners within the Real Estate Equity Securitisation Alliance (REESA) to the IASB and FASB,' said Gareth Lewis, director of finance at EPRA.

He added: 'A major concern with the previous proposal was that it failed to recognise the characteristics of owning and leasing investment property - where the asset is viewed in its entirety, rather than as the in-place lease and a residual asset. The passage of the original proposals could have been very damaging to the listed real estate industry globally.'

According to the association, the proposed new rules for lease accounting would have dramatically changed the way real estate companies account for their property. Every time a property company entered into a lease, it would have been treated as selling a portion of the property and recognised amounts due under the lease as a financial receivable. The company would have no longer showed rental income, but interest and profit on the 'sale' instead.

Lewis said that the decision is likely to have more impact on listed real estate companies in the US and Asia, where fair value reporting is less established and many property companies report properties at cost. This contrasts with the situation in Europe where over 95% of companies in the EPRA index are already reporting property at fair value in accordance with the EPRA Best Practices Recommendations.

The accounting standards bodies’ preliminary decision is expected to be reflected in the revised Exposure Draft on lease accounting, due to be published before year-end.