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EFRAG final comment letter on IASB proposed amendments to IAS 16 and IAS 41

  • EFRAG (European Financial Reporting Advisory Group) (dk green) Image

28 Oct 2013

The European Financial Reporting Advisory Group (EFRAG) has issued their final comment letter on the IASB's Exposure Draft ED/2013/8 'Agriculture: Bearer Plants (proposed Amendments to IAS 16 and IAS 41)'. In the final comment letter, EFRAG agrees with the IASB that bearer plants should be accounted for under the cost model or the revaluation model of IAS 16. However, there are a number of areas that EFRAG recommend that the IASB consider before any amendments to IAS 16 and IAS 41 are made.

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.  

EFRAG “supports the use of the accumulated cost measurement model for immature plants”.  They note that “the growing phase of bearer plants differs” and recommend, “as a practical expedient, to define the maturity date as the date of the first harvest of commercial value”.  The proposed transitional provisions and deemed cost exemption in IFRS 1 First-time Adoption of International Financial Reporting Standards are also supported.    

However, EFRAG recommends that the IASB should consider “broadening the scope of the amendments” in order to include other biological assets rather than just bearer plants.  EFRAG comment: 

Business models for bearer biological assets are economically similar (regardless of whether they use bearer plants or other biological assets) in that the bearer assets do not undergo further significant biological transformation and that the entity only sells the produce.  Introducing a different accounting treatment for bearer plants reduces comparability of financial information. 

EFRAG highlight that a broader scope would “improve the quality of financial reporting” and feel that the scope “should rely on the predominant use of the biological assets as this would allow entities to better reflect the economic substance of their activities”. 

EFRAG does not consider any additional guidance is necessary to apply the accounting models of IAS 16 to bearer plants although EFRAG would like the IASB to “verify” that “the accounting models of IAS 16 can be applied to bearer plants”.  EFRAG also comment that that “no additional fair value disclosures should be required for bearer plants” and there should be no need for additional non-financial disclosure in the financial statements. 

The comments of EFRAG are consistent with those of the Financial Reporting Council (FRC) who 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. 

Click for the press release and final comment letter on the EFRAG website.

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