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We support changing the accounting for bearer plants, recommend extending scope to bearer livestock

  • Deloitte Comment Letter Image

Oct 28, 2013

We have published our comment letter on the IASB Exposure Draft ED/2013/8, "Agriculture: Bearer Plants." We welcome the IASB’s proposed amendment to measure bearer plants using either a cost or revaluation model under IAS 16, "Property, Plant and Equipment" rather than the fair value less costs to sell model under IAS 41, "Agriculture" and support the proposed amendments, subject to a number of comments. We believe that the IASB should further consider the scope of the amendment and specifically that the IASB should perform further research, outreach, and deliberation on extending the proposed amendments to bearer livestock.

We agree with the principal reasoning provided by the IASB that bearer plants, once mature, no longer undergo significant biological transformation and therefore are similar to, and should be subject to, the same measurement requirements as manufacturing. However, we believe this same approach may also be equally applied to livestock, and note this would eliminate volatility in reported income arising from changes in fair value when the holder of the assets has no intention to change the use of its assets other than by sale for ancillary use at the end of its useful life:

We believe that the IASB should further consider the scope of this amendment and specifically that further consideration be given to whether the proposed amendments be extended to livestock that is held for production rather than for its own carcass, for example sheep for wool, chicken and ducks for eggs and dairy cattle for milk. The existence of an active market for bearer livestock that provides a reliable fair value does not alter the nature of these types of biological asset and hence we see no reason in principle why the rationale underlying the proposed amendment to the measurement of bearer plants should not also apply to bearer livestock. We do not see any immediately compelling reason to distinguish between these two types of biological assets.

Notwithstanding our recommendations around bearer livestock, the comment letter notes that we would not object to the IASB finalizing the proposed amendment on bearer plants and then undertaking a second phase of the project to consider bearer livestock.

Other observations made in the comment letter include:

  • We agree that bearer plants should be measured at accumulated cost before being placed in production, in the same way as self-constructed items of machinery.
  • We do not concur with the IASB’s comment that in most cases the impact of accounting separately for the roots of perennial plants would not be material and request additional guidance on applying the concepts in IAS 16 to these plants.
  • We recommend additional guidance be included in any finalized amendment as to when bearer plants are considered to be "mature" and hence that cost capitalization ceases, and for the treatment of costs associated with a plant's growth stage through to maturity.
  • We do not see bearer plants as being sufficiently different in nature to other classes of property, plant, and equipment to warrant incremental disclosures, and consider possible additional disclosures identified in the exposure draft as nonfinancial in nature and not required in general purpose financial statements, e.g., disclosures about productivity, age profiles, and physical quantities.
  • We agree with the proposed transitional provisions and first-time adoption considerations, but note a number of consequential and other matters that should be considered in finalizing the amendments, including those related to classification, reclassification, and impairment.

Click to access the full comment letter.

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