Extracts from relevant Accounting Standards for Private Enterprises (ASPE)
Section 3041, Agriculture, paragraphs 3041.09, 3041.17, 3041.22, 3041.24, 3041.40, 3041.54-.55, 3041.58, 3041.65-.67, and 3041.71-.78.
Section 3041 establishes the standards for the recognition, measurement, presentation, and disclosure of an agricultural producer’s agricultural inventories and productive biological assets. Biological assets are living animals or plants, and can be either agricultural inventories or productive biological assets based on the definitions in Section 3041 and their intended use. Examples of agricultural inventories are beef and picked grapes, and the related productive biological assets are beef cattle and grape vines, respectively.
Measurement
Under Section 3041, an agricultural producer shall make an accounting policy choice to measure agricultural inventories using either the cost model or the net realizable value model when certain conditions are met. For productive biological assets, Section 3041 states that these assets shall be measured at cost. For agricultural inventories and productive biological assets, climate-related risks can increase costs due to changes in legislation and other transition risks. For example, the use of certain pesticides may affect input costs if agricultural producers need to switch to products with environmentally friendly ingredients that are more costly. Extreme heat and drought may also increase input costs due to additional water and fertilizer needed to ensure the healthy development of certain crops.
Under Section 3041, productive biological assets have a limited useful life (subject to amortization), or they may be managed on a collective basis to maintain their collective productive capacity and be considered to have an indefinite useful life (not subject to amortization).
Paragraph 3041.65 states that amortization of a productive biological asset shall be recognized in a rational and systematic manner appropriate to the nature of a productive biological asset with a limited life and its use by the agricultural producer. Additionally, the amortization method and estimates of the life and useful life of productive biological assets shall be reviewed on a regular basis. Significant climate-related events may indicate a need to revise the amortization method or estimates of the life and useful life of a productive biological asset. For example, extended periods of drought or unusual temperature fluctuations (such as heatwaves or unexpected frost) can reduce the expected productivity of crops or livestock, impacting their useful life.
Impairment and write-downs
The impact of significant climate-related events may result in more than a change in the life or useful life of the productive biological asset and may lead to impairment or write-downs of agricultural inventories.
When the cost of agricultural inventories exceeds the net amount they can realistically be sold for, the agricultural inventories shall be written down to their net realizable value. Climate-related risks may cause agricultural producers to write down agricultural inventories due to risks such as changes in consumer behaviours (e.g., trends in eating less beef and other animal meats) or promoting products that produce less methane.