solution

Before the comments of The Hong Kong and Shanghai Hotels, Limited (see Real-life Case 5.1), Robert Gazzi and Ming Tse of PricewaterhouseCoopers had commented on the potential application of IAS 40 Investment Property in Hong Kong in 2002 as follows:

In regions such as Hong Kong, where the property cycle is typically characterised by substantial peak to trough swings, taking all fair value changes through the profit and loss account as an operating item would result in substantial volatility of reported profit year on year … Once year on year changes in asset values of investment properties are included in the profit and loss account, using reported profit as a yardstick to measure a company’s performance would be simplistic and possibly misleading.

However, when the revised IAS 40 was finally adopted in Hong Kong as HKAS 40 Investment Property in 2005, HKAS 40 seemed to be the “most well-received” converged IAS in terms of the number of companies that had adopted it early, before the effective date (excluding those that had fully adopted all new HKFRSs). The following list sets out certain listed companies that selectively adopted HKAS 40 early:

• The Bank of East Asia, Limited

• CATIC International Holdings Limited

• Cheung Kong (Holdings) Limited

• Gold Peak Industries (Holdings) Limited

• Hanison Construction Holdings Limited

• Hutchison Whampoa Limited

• IDT International Limited

• Junefield Department Store Group Limited

• Omnicorp Limited

• Pak Fah Yeow International Limited

• Recruit Holdings Limited

• South China Holdings Limited

These include large and small companies, property developers and banks, and Hong Kong and Mainland China companies.

Discuss the possible rationale why those listed companies might have adopted IAS 40 earlier, but there were negative comments from The Hong Kong and Shanghai Hotels, Limited and Robert Gazzi and Ming Tse of PricewaterhouseCoopers.