FRC objects to IASB proposed amendments to IAS 16 and IAS 41

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30 Sep, 2013

The Financial Reporting Council (FRC) has issued their final comment letter on the International Accounting Standard Board’s (IASB’s) Exposure Draft, ED/2013/8 ‘Agriculture: Bearer Plants’. Although the FRC are supportive of the proposals to account for bearer plants under IAS 16 ‘Property, Plant and Equipment’, they feel that the amendments are “too narrow” and should include other “biological assets which could also be more usefully valued in accordance with IAS 16” such as livestock.

The IASB Exposure Draft (ED) proposes amendments to IAS 16 ‘Property, Plant and Equipment’ and IAS 41 ‘Agriculture’ to include bearer plants within the scope of IAS 16.  Currently, IAS 41 requires that all biological assets that are related to agricultural activity must be measured at fair value less costs to sell. The amendments would bring bearer plants (e.g. fruit trees and grape vines) which no longer undergo significant biological transformation into the scope of IAS 16 so that they would be accounted for in the same way as property, plant and equipment.  

Bearer plants are defined as plants that are used in the production or supply of agricultural produce, are expected to bear produce for more than one period, and are not intended to be sold as a living plant or harvested as agricultural produce.  Plants that are grown both to bear produce and for sale as living plants or agricultural produce remain in the scope of IAS 41 (for example, trees that are cultivated for their lumber as well as their fruit). Equally, the produce on the bearer plants would continue to be accounted for under IAS 41.  The IASB proposes that before bearer plants are placed into production (i.e. before they reach maturity and bear fruit) they should be measured at accumulated cost.  After they reach maturity, bearer plants would be accounted for either under the cost model or a revaluation model. 

The FRC comment that they “see no reason” why livestock that is held purely for breeding purposes and not for sale should not also be able to be accounted for under IAS 16 rather than IAS 41 and highlight that this would “lead to greater consistency across agricultural entities” rather than the ED proposals that will “reduce comparability for the user”. 

Additionally, the FRC would not like to see additional non-financial disclosures for bearer plants, such as disclosures about productivity of bearer plants and considers that these would be “too onerous” for preparers.  

Rather than the limited scope amendments proposed to IAS 16 and IAS 41, the FRC advocates a fully comprehensive review of IAS 41 “from first principles”. 

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