IASC News

IASC Issues Standard on Agriculture

The International Accounting Standards Committee (IASC) have recently published International Accounting Standard IAS 41, Agriculture. IAS 41 prescribes the accounting treatment, financial statement presentation, and disclosures related to agricultural activity, a matter not covered in other International Accounting Standards. Agricultural activity is the management by an enterprise of the biological transformation of living animals or plants (biological assets) for sale, into agricultural produce, or into additional biological assets.
IAS 41 requires measurement at fair value less estimated point-of-sale costs from initial recognition of biological assets up to harvest, other than when fair value cannot be measured reliably on initial recognition. A change in fair value less estimated point-of-sale costs should be included in net profit or loss for the period in which it arises.
IAS 41 does not deal with processing of agricultural produce after harvest – for example, processing grapes into wine for sale. Such processing is generally accounted for under IAS 2, Inventories.
There is a presumption that fair value can be measured reliably for a biological asset. However, that presumption can be rebutted only on initial recognition for a biological asset for which market-determined prices or values are not available and for which alternative estimates of fair value are determined to be clearly unreliable. In such a case, IAS 41 requires an enterprise to measure that biological asset at its cost less any accumulated depreciation and any accumulated impairment losses. Once the fair value of such a biological asset becomes reliably measurable, an enterprise should measure it at its fair value less estimated point-of-sale costs. In all cases, an enterprise should measure agricultural produce at its fair value less estimated point-of-sale costs.
Commenting on the Standard, Reyaz Mihular, Chairman of IASC«s Steering Committee on Agriculture, said: »The Board concluded that the Standard should require a fair value model for biological assets because of the unique nature and characteristics of agricultural activity. One of the unique characteristics of agricultural activity is the management of biological transformation. The financial statements of enterprises undertaking agricultural activity should reflect the effects of biological transformation, which are represented by fair value changes in biological assets. Under a transaction-based, historical cost accounting model, the effects of biological transformation are not reflected because the patterns of biological transformation often differ significantly in timing from the patterns of cost incurrence.«|Reyaz Mihular continued: »However, the Board also concluded that fair value cannot be measured reliably for some biological assets. Some commentators on Exposure Draft, E65, expressed significant concern about the reliability of fair value measurement for some biological assets. They argued that active markets do not exist for some biological assets, in particular for those with a long growth period. They also argued that present value of expected net cash flows is often an unreliable measure of fair value due to the need for, and use of, subjective assumptions. The Board decided that there was a need to include a reliability exception for cases where market-determined prices or values are not available and alternative estimates of fair value are determined to be clearly unreliable."
The Standard is effective for annual financial statements covering periods beginning on or after 1 January 2003. Earlier application is encouraged.

IASC Trustees Initiate New Structure

At their 8 March 2001, meeting in Brussels, Belgium, the IASC Trustees activated the new IASC Constitution agreed to May 2000, effective immediately.
In doing so, the Trustees established a not-for-profit Delaware corporation, named the International Accounting Standards Committee Foundation (IASC Foundation) to oversee the London-based International Accounting Standards Board (IASB). The IASB is the professional standard-setting body tasked with the creation of a single-set of high-quality global accounting standards. The 14-member IASB, chaired by Sir David Tweedie and announced in January, will begin full-time operations in April 2001 and will hold its first public meetings in London on 18-20 April 2001.
The Trustees began deliberations regarding the 175 applicants and nominations to the Standards Advisory Council. At the meeting, the Trustees reiterated their commitment to achieving a broad and representative balance of perspectives, both professionally and geographically, through the creation of the Standards Advisory Council. The Trustees expect to complete the selection process for the Advisory Council by early April.
With the support of the Corporation of London, the IASC Foundation will locate the new headquarters of the IASB at 30 Cannon Street in the City of London. The new offices are expected to open in early June 2001.