FYI Article – Explore the AcSB’s Discussion Paper on Agriculture

February 2016

Help shape the future accounting for agricultural assets under accounting standards for private enterprises. The Accounting Standards Board’s (AcSB) Discussion Paper, “Agriculture,” seeks your input on how private enterprises should account for living plants and animals and the harvested products from those assets.

Why Undertake this Project?

Specific authoritative guidance does not exist for how private enterprises should account for living animals or plants and the harvested product from these assets. As a result, diversity in practice exists and is causing difficulty for many.

In our initial research, we asked farmers, practitioners and creditors for input on the need for authoritative guidance. The response was nearly unanimous support for the development of authoritative guidance.

Do you agree that authoritative guidance should be developed? Tell us why or why not.

Why Issue a Discussion Paper?

A discussion paper comes before, and in addition to, an exposure draft. The feedback from the Discussion Paper will help us decide whether to continue the Agriculture project to develop authoritative guidance, either by developing a new standard or amending existing standards. If we decide to proceed, we will consider the input received and develop an exposure draft of proposed changes to accounting standards for private enterprises, in accordance with due process.

Unlike an exposure draft, which includes a complete draft of the proposed new or amended standard as we expect to issue it, a discussion paper contains an analysis of the issues and our preliminary views. These preliminary views are just that – preliminary – and may change drastically or even just minimally based on your input.

Here is where a discussion paper fits in the stages of due process:

What Is the Scope of the Project?

The scope is very important because it tells you what is included and excluded. The guidance would be applied to account for:

  •  biological assets involved in agricultural activities; and
  • agricultural produce that is the output of an enterprise’s agricultural activity.

To understand the scope, you need to understand the definitions for agricultural activity, biological assets and agricultural produce.

Agricultural activity is the management by an enterprise of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets.

A biological asset is a living animal or plant.

Agricultural produce is the harvested product of the enterprise's biological assets.

Let’s consider a few examples. The hay that a farmer grows to feed animals is included in the scope but the hay a farmer buys to feed animals is not. Animals purchased by a farmer to fatten are included in the scope but animals purchased by a pet shop are not.

The hay that a farmer buys and the living animals that a pet shop purchases are not included in the scope because the enterprise did not manage their biological transformation.

Hay bought by a farmer and animals purchased by a pet shop would continue to be accounted for under Section 3031, Inventories.

Do you agree with the proposed scope and definitions? We want to hear from you.

When Should an Asset Be Included in Financial Statements?

Deciding when an asset should be included in the financial statements is a critical decision. We think that an asset should be recognized when it is purchased or created. For example, when a fruit tree is purchased or when a calf is born.

This decision may seem straightforward, but can be less apparent when considering a planted crop. Some think that a planted crop should not be recognized as an asset and costs should be expensed instead.

Our preliminary view is that a biological asset should be recognized when the asset definition and recognition criteria are met. So, in the case of an annual crop, we think that a planted crop should be recognized in financial statements as an asset.

Do you agree? Provide your views by answering some or all of the questions in our Discussion Paper.

How Should Unharvested Crops Be Measured?

Unharvested crops include annual crops like corn, grapes and apples as well as long-term crops like timber and nursery stock. We understand that the predominant practice is to measure unharvested crops at cost. Our preliminary view is that an unharvested crop should be measured at cost. This view is based on the following considerations:

  • Cost provides creditors with better information.
  • This approach can be applied with a reasonable financial burden and effort.
  • There is no active market for unharvested crops.

What are your views? We want to know whether you agree and how you would determine cost.

How Should Agricultural Produce and Animals Held for Sale Be Measured?

Agricultural produce is the harvested product of the enterprise’s living plants and animals. This category includes grain held for sale or use by the enterprise, picked fruit, eggs and wool. Predominant practice today is to measure agricultural produce at net realizable value.

Animals held for sale include developing and mature animals that are expected to be sold. Practice is mixed with respect to developing animals, with some measuring these animals at cost and others at net realizable value. Practice is more consistent with respect to mature animals, with the majority of enterprises measuring these animals that are held for sale at net realizable value based on the exception contained in Section 3031, Inventories.

Our preliminary view is that agricultural produce and animals held for sale should be measured at current value when certain conditions are met and at cost when those conditions are not met. This view is based on the following considerations:

  • Current value, when readily available, provides creditors with better information about these assets.
  • Current value, when readily available, can be applied with less financial burden than a cost approach.
  • Comparability would be achieved because similar assets would be measured on the same basis.

Do you agree with our preliminary views? Send us your answer and views on what you think the specific conditions should be and how you would determine current value.

How Should Bearer Plants and Animals Be Measured?

Bearer plants include grape vines and fruit trees and predominant practice today is to measure bearer plants at cost.

Bearer animals include animals used to produce milk and animals that are being developed to become “bearer” (for example, an immature cow prior to being productive in nature or becoming part of the reproductive herd).

There is significant diversity in practice in measuring bearer animals:

  • In the dairy industry, the majority use cost derived from standard cost information published by industry groups.
  • In the beef industry, the majority use current value approach under the exception in Section 3031.

Our preliminary view is that bearer plants and animals should be measured at cost. This view is based on the following considerations:

  • Creditors generally agreed that a cost approach provides better information about cash flows, both from a capital expenditure perspective and understanding the operating income of an enterprise.
  • Stakeholders noted that existing illustrative materials on how cost might be applied to bearer plants and animals can be applied with a reasonable amount of cost and effort.

We acknowledge that any preliminary view for bearer animals will be controversial because this area has the greatest diversity in practice.

We want to find out whether you agree with our preliminary view as well as:

  • How would you determine cost?
  • In what circumstance should amortization be recognized and over what period of time?
  • What challenges arise in accounting for biological assets should the use of the animal changes over its life (for example, when animals shift from being bearer to held for sale)?

What Impairment Model Should Be Used?

The Discussion Paper addresses which impairment model should be used in accounting for biological assets and agricultural produce measured at cost. For assets measured at current value (under the preliminary view set out in the Discussion Paper for agricultural produce and animals held for sale) no separate impairment test would be required.

The primary differences between the impairment models that could be applied are:

  • the type of current value that the carrying amount is compared to (i.e., net realizable value for inventories and fair value for long-lived assets); and
  • a one-step impairment process (for inventories) versus a two-step impairment process (for long-lived assets).

Our preliminary view is that the impairment model for inventories would be used for current assets and the impairment model for long-lived assets would be used for bearer assets and other long-term assets (for example, timber). This view is based on the following considerations:

  • These impairment models have been in place for some time and are providing timely and relevant input based on when and how an enterprise expects to realize cash flows.
  • Issues have not been identified on applying these models.

Do you agree with our preliminary view?

How Should Agricultural Assets Be Presented?

The issue is classification of long-lived biological assets (for example, dairy cattle, timber, and vines) as current or long term. A few stakeholders that we talked to noted a practice of presenting long-lived bearer assets as current.

Our preliminary view is that presentation should be determined by the guidance set out in Section 1510, Current Assets and Current Liabilities. Under that view, milking cattle or dairy cattle would be classified as long-term assets. For other biological assets and agricultural produce, we think that the existing standard provides sufficient guidance with respect to presentation.

We want to hear whether you agree with our preliminary view.

What Disclosures Should Be Required?

The Discussion Paper also contains proposed disclosures to describe each major category of biological asset and agricultural produce, such as the nature of activities relating to each category and financial risk management strategies related to these assets.

We also included a number of specific disclosures for biological assets and agricultural produce measured at current value as well as at cost. For example, disclosures that:

  • describe the methodology used;
  • present the total value for each major category of asset; and
  • provide details about the amounts recorded in the income statement.

Tell us whether you agree with the proposed disclosures.

For More Information

  • View the webinar.
  • Read the Discussion Paper to find out more including the preliminary research we conducted to understand practice, a summary of IFRS and U.S. GAAP, and a discussion of the different measurement bases.
  • Watch for other opportunities to participate in the Agriculture project via its project page, including cross-country and virtual roundtables planned for May and June 2016.
  • Respond to the Discussion Paper by May 19, 2016.


Kathryn Ingram, CPA, CA
Principal, Accounting Standards Board
Phone: +1 (416) 204-3475