Agriculture: Bearer plants

Date recorded:

The project manager introduced the agenda papers for the IASB redeliberations of the proposals in its project on Bearer Plants by discussing the three main issues raised by respondents to Exposure Draft ED/2013/8 Agriculture: Bearer Plants (Proposed amendments to IAS 16 and IAS 41).

The project manager opened the session by briefly summarising the key issues proposed in the IASB's ED on bearer plants. Although the majority of the respondents agreed with the proposals, three issues had been raised which the project manager judged as warranting discussion and resolution by the Board. The following were the three main issues raised by constituents:

  1. Extend the scope of the amendments to other biological assets. Most of these respondents suggested extending the scope to livestock. Many of these respondents also suggested extending the scope to cover all biological assets predominantly used to produce agricultural produce. The ED currently follows a no-alternative-use model for plants only, i.e. plants that are only used to produce agricultural produce;
  2. Do not require fair value measurement of growing produce. Most of these respondents suggested only requiring fair value less costs to sell to be measured at the point of harvest, or providing additional relief from fair value measurement on the basis of cost-benefits. Some respondents suggested accounting for produce under a cost model before harvest, like inventories/work in progress;
  3. Provide guidance on when a bearer plant is in the ‘location and condition necessary for it to be capable of operating in the manner intended by management’ in accordance with IAS 16.16(b) — ie when it reaches maturity.


Issue 1 – Scope of the amendments

The staff recommended that no change be made to the scope of the ED except to revise part (c) of the definition of a bearer plant to state ‘the likelihood of selling it as a living plant or harvesting it as agricultural produce, except for incidental scrap sales, is remote’. The staff recommended that no further guidance be added on interpreting the definition of a bearer plant.

The project manager explained that expanding the scope could raise more practical issues and a further analysis of IAS 41 was needed before considering other issues. The staff acknowledged that it did not have the practical experience and knowledge to address livestock issues. For these reasons, the staff saw merit in completing this project in its limited scope.

One board member indicated support for the staff proposal. Livestock could be sold and were not attached to the ground. He acknowledged that the Board had never undertaken a full review of the standard. However, in the 2011 agenda consultation the IASB was asked to address a limited-scope issue, which they had done. Any further review should be reserved and potentially be addressed through the next agenda consultations to be launched next year.

Another board member also indicated support for staff proposal. Regarding the wording “likelihood is remote ” he questioned whether the Board were introducing a threshold to which the project manager responded that the only intention was to restrict the scope to those plants that were really intended to be captured.

Another board member also showed his support for the staff proposal. He had a question regarding the lead-in to paragraph 45 which states: “As a practical expedient….” and wondered whether this would add more confusion rather than clarification. Further, he believed that focusing on commercial quantity would make more sense.

With regard to the likelihood concept, one board member remarked that other items of PP&E did not have a threshold concept. He suggested the Board revert to the original business model application.

Another board member said that scrap value for a living asset may not be the same concept as for any other type of asset.

Lastly, one board member indicated his support for the staff proposal and the wording as it would be more difficult to get into the scope of IAS 16.

When called to vote on the staff proposal, a majority of 15 Board members agreed.


Issue 2 - Accounting for produce growing on bearer plants

The Project Manager introduced the issue noting that there was an inconsistency in IAS 41 in paragraphs 10C and 30. Paragraph 10C stated that an entity shall recognise a biological asset or agricultural produce when … the fair value or cost of the asset can be measured reliably. Paragraph 30 related to cases when fair value cannot be measured reliably. Moreover, in some cases cost could be more difficult to measure that fair value.

The staff recommended that produce growing on bearer plants should remain in the scope of IAS 41 and be measured at fair value through profit or loss during the growth period. The staff also recommended that no additional guidance be provided on how to measure the fair value of the produce.

In addition, the staff suggested that the Basis for Conclusions accompanying the final amendment should affirm that practical difficulties in measurement of the produce may lead preparers to consider IAS 41.30 and IAS 41.10(c). It should also explain that those paragraphs were considered by the IASB when determining the appropriate accounting treatment for the produce.

One board member expressed his belief that while reliability was important, he felt that consistency was more important. There were products with short cycles of less than one year where fair value was not important, whereas for products such as a forest it would be because of its long life cycle. In his view, maintaining consistency in the accounting treatment for bearer plants and products from bearer plants was so important that both should be governed by the same standard. Otherwise, one would have to handle two measurement bases for the same product. For these reasons he did not support the proposal.

Another board member indicated support for the staff proposal because the intent was not to expand the scope. The exceptions provided in IAS 41 were working. In his jurisdiction (Latin America), which was commodity-driven, the standard was well understood and people knew when one cannot rely on the valuation.

One board member asked what “clearly unreliable” meant because it could lead to different interpretations. Were there problems in certain jurisdictions? The project manager responded that there was diversity in practice. The board member asked whether there was something the Board could do to address the diversity. The project manager acknowledged that it would be more sensible to use “unreliable” rather than “clearly unreliable”. One board member thought that “clearly” was just to reinforce what was said.

One board member indicated that it was necessary to stay focused on the limited scope of the proposed amendment because the ED did not request feedback on the inconsistency issue. In the future there could be a more comprehensive review of IAS 41.

When these issues were voted on, a majority of the Board approved of the staff recommendations, i.e. not to change the ED proposal to account for produce growing on bearer plants at fair value through profit or loss and not to include any further guidance on how to measure the fair value of the produce. Further, the Board agreed to affirm that practical difficulties may lead preparers to consider IAS 40.10(c) and .30 and to explain in the Basis for Conclusions that the Board had considered these paragraphs when deciding on the appropriate accounting treatment for the produce and why it rejected making any changes to them.


Issue 3 - Guidance on applying IAS 16 to bearer plants

The ED proposed that the recognition, measurement and derecognition requirements of IAS 16 be applied to bearer plants without modification or supplementation.

The staff recommended that the following guidance be added: “As a practical expedient an entity may assume a bearer plant is in the location and condition necessary for it to be capable of operating in the manner intended by management when it starts to grow produce of commercial value.”

One board member felt that more words were needed and expressed his concerns as to what “practical expedient” meant. Another board member agreed and indicated that the proposed wording may lead to significant diversity in practice and could even lead to more issues for other PPE items. Several board members suggested keeping silent and not adding this additional guidance. One board member felt that this guidance did not seem to help avoiding diversity in practice.

Another board member asked whether one of the interpretations of “commercial value” was that cumulative revenue exceeded cumulative costs, which seemed very late. He believed it was necessary to explain what commercial value meant.

One board member remarked that prices went up and down and that it would be difficult to explain what commercial value meant. Quantitative measures would be a better measure.

One board member did not agree with the proposal to keep bearer plants in IAS 16, another board member suggested the definition of bearer plants should be in IAS 41 and their recognition be treated in IAS 16. The project manager responded that bearer plants meet the definition of PPE and they are just being scoped out of IAS 41. The Chairman also indicated that most board members agreed with the proposed changes.

One board member asked the project manager whether she had received comments form standard setters raising concerns regarding unintended consequences for other pieces of PPE. The project manager responded that no concerns were received.

When asked to vote on the recommendations, a majority of the Board rejected the proposal to add guidance to IAS 16 as was suggested by the staff. A majority of the board members agreed to reaffirm that bearer plants should remain in the scope of IAS 16 and to leave the proposal in the ED unchanged.

The project manager asked whether board members had any other issues to be discussed. There were no additional comments from board members.

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