Agriculture Advisory Group
June 21, 2017
The Agriculture Advisory Group’s purpose is to advise the Accounting Standards Board (AcSB) on the development of authoritative guidance related to the accounting for biological assets and agricultural produce in Part II of the CPA Canada Handbook – Accounting. The Group provides advice to the AcSB but is not authorized to interpret or provide authoritative guidance on accounting standards for private enterprises (ASPE).
This document has been prepared by the staff of the AcSB and is based on discussions during the Group’s meeting. The meeting notes do not necessarily represent the views of the AcSB and nothing in them constitutes authoritative guidance on acceptable or unacceptable application of ASPE. Only the AcSB can make such a determination.
Recognition and Measurement
Unit of Account
The Group discussed whether guidance on agriculture should include specific guidance on the unit of account for productive biological assets, and whether such guidance would reduce the complexity associated with determining cost. Group members were divided into breakout groups to discuss current practice in the industry with regards to unit of account, and to consider examples illustrating how a standard cost method could be applied to groups of assets.
The majority of Group members agreed that many agricultural producers account for their productive biological assets on a group basis, and are not able to separately identify and allocate direct and overhead costs to individual assets. These members thought that permitting the use of standard costs would reduce the complexity associated with tracking the costs associated with individual assets. Most agricultural producers have this information available even if it is not currently integrated with the accounting records.
Many Group members were concerned that determining standard costs would be complex for less-sophisticated preparers. Several Group members who are practitioners said that their firms often prepare financial statements on behalf of their smaller clients and that their approach would likely be to apply a common, standard cost method for the most widely reported classes of productive biological assets. These Group members agreed that the illustrative examples provided a useful basis for accounting for groups of assets.
Other Group members said that many preparers track detailed cost information by individual asset, and the Group agreed that enterprises should be given the flexibility to use judgment in deciding whether to group productive biological assets for the purposes of recognition and measurement.
Group members also emphasized the importance of disclosure in providing users with the information that they need about an agricultural producer’s productive biological assets.
The Group discussed current practice regarding the recognition and measurement of unborn animals, and whether unborn animals would be considered agricultural inventories or productive biological assets under the Board’s current proposals.
Group members provided mixed views on current practice. One Group member with clients in the swine industry said that unborn animals are currently recognized and measured at cost. However, another Group member, whose clients measure their cattle at net realizable value, said they do not recognize assets for unborn animals.
Overall, Group members agreed that there are often significant costs associated with conceiving and developing unborn animals, and that there was a high degree of certainty that these costs would produce future benefits. As a result, the Group agreed that unborn animals should qualify for recognition, and be measured on the same basis as other agricultural inventories or productive biological assets. The Group noted that, because unborn animals would not meet the proposed conditions for measurement at net realizable value, unborn animals would be measured at cost regardless of the category to which they are assigned.
The Group discussed the Board’s preliminary view in its Discussion Paper, “Agriculture” that the presentation requirements for agricultural producers should be determined by the current guidance in Section 1510, Current Assets and Current Liabilities. Group members considered feedback received from stakeholders in response to the Discussions Paper.
Group members explained that agricultural inventories could be long term in nature (e.g., unharvested ginseng grows for multiple years), and conversely many productive biological assets could be short term in nature (e.g., laying hens are productive for less than a year). As a result, Group members were concerned that the requirements in Section 1510 might be difficult to apply for many agricultural producers, or lead to current ratios that are misleading to users. Group members discussed whether the normal operating cycle used to determine presentation in Section 1510 refers to a product’s cycle or an enterprise’s operating cycle, and noted that mixed operations might have more than one operating cycle.
Group members asked whether staff could determine how mixed operations in other industries determine their normal operating cycles.
Group members discussed the Board’s preliminary view in its Discussion Paper that impairment for agricultural inventories and productive biological assets should be assessed under the models used for current and long-lived assets. Group members considered stakeholders’ responses to the Discussion Paper.
Overall, the Group agreed that the current models for assessing impairment function well, and can be applied to agricultural inventories and productive biological assets. Group members discussed whether the indicators of impairment provided under the current models were sufficient to capture events specific to the agriculture industry, and agreed that they were.
The Group discussed the Board’s preliminary views in its Discussion Paper on disclosure requirements, including stakeholder feedback. Group members were concerned with the proposed requirement for an agricultural producer to disclose the aggregate gain or loss arising during the current period from a change in current value. They said that it was not clear whether this would include gains or losses resulting from a change in quantity.
Group members also discussed the Board’s preliminary view that agricultural producers should not be required to disclose quantities of biological assets and agricultural inventories because this type of information is not required by other standards in ASPE. The majority of Group members thought that these types of quantitative disclosures would be very useful in this industry, and said that it was often possible to obtain this type of information from third-party sources.
The Group provided feedback on the current diversity in practice concerning the income statement presentation of unrealized gains on agricultural inventories and productive biological assets, noting that a lack of guidance has resulted in many different approaches.
Group members added that accounting for cannabis operations is a topic stakeholders frequently raise, and recommended the Board consider whether there are any issues specific to this type of agricultural activity that should be explored. Another Group member thought that the Board should consider guidance regarding the calculation of gross margin because this ratio is often ambiguous and misleading.