A Comparative Study of Difficulties in Accounting Preparation and Judgement in Agriculture Using Fair Value and Historical Cost for Biological Assets Valuation | Revista de Contabilidad-Spanish Accounting Review

Article information

Abstract

This paper presents empirical research comparing the accounting difficulties that arise from the use of two valuation methods for biological assets, fair value (FV) and historical cost (HC) accounting, in the agricultural sector. It also compares how reliable each valuation method is in the decision-making process of agents within the sector. By conducting an experiment with students, farmers, and accountants operating in the agricultural sector, we find that they have more difficulties, make larger miscalculations and make poorer judgements with HC accounting than with FV accounting. In-depth interviews uncover flawed accounting practices in the agricultural sector in Spain in order to meet HC accounting requirements. Given the complexities of cost calculation for biological assets and the predominance of small family business units in advanced Western countries, the study concludes that accounting can be more easily applied in the agricultural sector under FV than HC accounting, and that HC conveys a less accurate grasp of the real situation of a farm.

JEL Classification:

M40

M41

Q10

Q14

Keywords:

fair value

historical cost

biological assets

farm accounting

agriculture

Resumen

Este estudio realiza un investigación empírica comparando las dificultades que se derivan de la utilización del valor razonable (VR) y del coste histórico (CH) en el sector agrícola. Se analiza también la fiabilidad de ambos métodos de valoración para la interpretación de la información y la toma de decisiones por parte de los agentes que actúan en el sector. Mediante un experimento realizado con estudiantes, agricultores y contables que operan en el sector agrícola, se halla que estos tienen más dificultades, cometen mayores errores e interpretan peor la información contable realizada a CH que la realizada a VR. Entrevistas en profundidad con agricultores y contables agrícolas desvelan prácticas contables defectuosas derivadas de la necesidad de aplicar el CH en el sector en España. Dadas las complejidades del cálculo del coste de los activos biológicos y el predominio de pequeñas explotaciones en el sector en los países occidentales avanzados, el estudio concluye que la contabilidad a VR constituye una mejoría de utilización y desarrollo de la contabilidad en el sector que la confeccionada a CH. Asimismo, el CH transmite una peor representación de la situación real de las explotaciones agrícolas.

Palabras clave:

valor razonable

coste histórico

activos biológicos

contabilidad agrícola

agricultura

Clasificación JEL:

M40

M41

Q10

Q14

Full text is only aviable in PDF

References

[Allen and Lueck, 1998]

D.W. Allen, D. Lueck.

The nature of the farm.

Journal of Law and Economics, XLI (1998), pp. 343-386

[Argilés and Slof, 2001]

J.M. Argilés, J. Slof.

New opportunities for farm accounting.

European Accounting Review, 10 (2001), pp. 361-383

[Argilés and Slof, 2003]

J.M. Argilés, J. Slof.

The use of financial accounting information and firm performance: an empirical quantification for farms.

Accounting and Business Research, 33 (2003), pp. 251-273

[Ball, 2006]

R. Ball.

International Financial Reporting Standards (IFRS): pros and cons for investors.

Accounting and Business Research, (2006), pp. 5-27

[Banerjee et al., 1999]

M. Banerjee, M. Capozzoli, L. McSweeney, D. Sinha.

Beyond kappa: a review of interrater agreement measures.

Canadian Journal of Statistics, 27 (1999), pp. 3-23

[Barlev and Haddad, 2003]

B. Barlev, J.R. Haddad.

Fair value accounting and the management of the firm.

Critical Perspectives on Accounting, 14 (2003), pp. 383-415

[Barth, 1994]

M.E. Barth.

Fair value accounting: evidence from investment securities and the market valuation of banks.

Accounting Review, 69 (1994), pp. 1-25

[Barth and Landsman, 1995]

M.E. Barth, W.R. Landsman.

Fundamental issues related to using fair value accounting for financial reporting.

Accounting Horizons, 9 (1995), pp. 97-107

[Barth et al.,1995]

M.E. Barth, W.R. Landsman, J.M. Whalen.

Fair value accounting: effects on banks’ earnings volatility, regulatory capital, and value of contractual cash flows.

Journal of Banking and Finance, 19 (1995),

[Barth et al., 1995]

M.E. Barth, W.R. Landsman, J.M. Whalen.

Fair value accounting: effects on banks’ earnings volatility, regulatory capital, and value of contractual cash flows.

Journal of Banking and Finance, 19 (1995), pp. 577-605

[Barth et al., 1996]

M.E. Barth, W.H. Beaver, W.R. Landsman.

Value-relevance of banks’ fair value disclosures under SFAS n° 107.

Accounting Review, 71 (1996), pp. 513-537

[Bernard et al., 1995]

V. Bernard, R. Merton, K. Palepu.

Mark-to-market accounting for banks and thrifts: lessons from the Danish experience.

Journal of Accounting Research, 33 (1995), pp. 1-32

[Bleck and Liu, 2007]

A. Bleck, X. Liu.

Market transparency and the accounting regime.

Journal of Accounting Research, 45 (2007), pp. 229-256

[Briers and Luckett, 1997]

M. Briers, P. Luckett, Ch. Chow.

Data fixation and the use of traditional versus activity-based costing systems.

Abacus, 33 (1997), pp. 1-20

[Chartered, 2007]

Chartered Financial Analyst Institute A comprehensive business reporting model: financial reporting for investors. http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2007. n6.4818, 2007

[Chittenden et al., 1998]

F. Chittenden, P. Poutziouris, S.M. Mukhtar.

Small firms and the ISO 9000 approach to quality management.

International Small Business Journal, 17 (1998), pp. 69-84

[Danbolt and Rees, 2008]

J. Danbolt, W. Rees.

An experiment in fair value accounting: UK investment vehicles.

European Accounting Review, 17 (2008), pp. 271-303

[Dearman and Shields, 2001]

D.T. Dearman, M.C. Shields.

Cost knowledge and cost-based judgement performance.

Journal of Management Accounting Research, 13 (2001), pp. 1-18

[Dowling and Godfrey, 2001]

C. Dowling, J. Godfrey.

AASB 1037 sows the seeds of change: a survey of SGARA measurement methods.

Australian Accounting Review, 11 (2001), pp. 45-51

[Elad, 2004]

Ch Elad.

Fair value accounting in the agricultural sector: some implications for the international accounting harmonization.

European Accounting Review, 13 (2004), pp. 621-641

[Elad, 2007]

Ch Elad.

Fair value accounting and fair trade: an analysis of the role of International Accounting Standard N° 41 in social conflict.

Socio-Economic Review, 5 (2007), pp. 755-777

[Elad et al., 2011]

Ch. Elad, K. Herbohn.

Implementing fair value accounting in the agricultural sector.

Edinburgh: The Institute of Chartered Accountants of Scotland, (2011),

[Fleiss, 1981]

J.L. Fleiss.

Statistical methods for rates and proportions.

John Wiley & Sons, (1981),

[Gigler et al., 2007]

F. Gigler, Ch. Kanodia, R. Venugopalan.

Assessing the information content of market-to-market accounting with mixed attributes: the case of cash flow hedges.

Journal of Accounting Research, 45 (2007), pp. 257-276

[Hann et al., 2007]

R.N. Hann, F. Heflin, K.R. Subramanayam.

Fair-value pension accounting.

Journal of Accounting and Economics, 44 (2007), pp. 328-358

[Herranz and Garcia-Osma, 2009]

S. Herranz, B. Garcia-Osma.

Background and recent developments in fair value measurement: From FASB's 1996 four decisions to the recent financial crisis.

Revista Española de Financiación y Contabilidad, XXXVIII (2009), pp. 647-660

[Herbohn and Herbohn, 2006]

K. Herbohn, J. Herbohn.

International Accounting Standard (IAS) what are the implications for reporting forest assets?.’ Small-scale Forest Economics.

Management and Policy, 5 (2006), pp. 175-189

[IASC, 2000]

IASC (2000) Joint working group of standard setters. Draft standard and basis for conclusions, financial instruments and similar items. London: IASC. in press.

[IASB, 1987]

I.A.S.B..

Basis for conclusions for I.F.R.S..

SMEs., (2009),

[Koll, 1987]

J.C. Kroll.

Le nouveau plan comptable: les occasions perdues.

Économie Rurale, 180 (1987), pp. 20-25

[Laswad and Baskerville, 2007]

F. Laswad, R.F. Baskerville.

An analysis of the value of cash flow statements of New Zealand pension schemes.

British Accounting Review, 39 (2007), pp. 347-355

[Liang and Wen, 2007]

P.J. Liang, X. Wen.

Accounting measurement basis, market mispricing, and firm investment efficiency.

Journal of Accounting Research, 45 (2007), pp. 155-197

[Mishra et al., 1999]

A.K. Mishra, H.S. El-Osta, C.J. Steele.

Factors affecting profitability of limited resource and other small farms.

Agricultural Finance Review, 59 (1999), pp. 77-91

[Nelson, 1996]

K.K. Nelson.

Fair value accounting for commercial banks: an empirical analysis of SFAS n° 107.

Accounting Review, 71 (1996), pp. 161-182

[Penttinen et al., 2004]

M. Penttinen, A. Latukka, H. Meriläinen, O. Salminen, E. Uotila.

IAS fair value and forest evaluation on farm forestry.

Proceedings of Human dimension of family, farm and community forestry international symposium, pp. 1

[Plantin and Sapra, 2008]

G. Plantin, H. Sapra.

Marking-to-market: panacea or Pandora's box?.

Journal of Accounting Research, 46 (2008), pp. 435-436

[Poppe, 1991]

K.J. Poppe.

Information needs and accounting in agriculture.

Agricultural Economics Research Institute LEI, 444 (1991), pp. 1-51

[Poppe and Beers, 1996]

K.J. Poppe, G. Beers.

On innovation management in Farm Accountancy Data Networks.

Agricultural Economics Research Institute LEI, 535 (1996), pp. 1-37

[Poppe and Breembroek, 1992]

K.J. Poppe, J.A. Breembroek.

The assessment of a farm's financial situation with a report writer.

Tijdschrift voor Sociaalwetenschappelijk onderzoek, 7 (1992), pp. 49-70

[PricewaterhouseCoopers, 2009]

PricewaterhouseCoopers.

Forest industry: application review of IAS 41.

Agriculture: the fair value of standing timber, (2009),

[Rayman, 2007]

R.A. Rayman.

Fair value accounting and the present value fallacy: the need for an alternative conceptual framework.

British Accounting Review, 39 (2007), pp. 211-225

[Ronen, 2008]

J. Ronen.

To fair value or not to fair value: a broader perspective.

Abacus, 44 (2008), pp. 181-208

[Sabaté and Enciso, 1997]

P. Sabaté, J.P. Enciso.

La valoración de inmobilizados en las empresas agrarias El caso de las plantaciones.

Técnica Contable, 579 (1997), pp. 177-184

[Schmitt, 1991]

G. Schmitt.

Why is the agriculture of advanced western economies still organized by family farms? Will this continue to be so in the future?.

European Review of Agricultural Economics, 18 (1991), pp. 443-458

[Tomkins and Groves, 1983]

C. Tomkins, R. Groves.

The everyday accountant and researching his reality.

Accounting Organizations and Society, 8 (1983), pp. 361-374

[Watts, 2003]

R.L. Watts.

Conservatism in accounting Part I: explanations and implications.

Accounting Horizons, 17 (2003), pp. 207-221

[Watts, 2006]

R.L. Watts.

What has the invisible hand achieved?.

Accounting and Business Research, (2006), pp. 51-61

The authors are grateful to the Universitat de Barcelona and the Spanish Ministerio de Educación y Ciencia (SEJ2005-04037/ECON) for granting this research, as well as to some students, farmers, accountants, firms and institutions (that prefer to remain anonymous) that agreed to participate in the experiment that made possible this study.

Indexed in:

Follow us:

Indexed in:

Follow us:

Subscribe to our newsletter