09 Aug 2005

Consistent with the Financial Reporting Standards Board's international convergence and harmonisation policy it is proposed that a new accounting regime will prescribe the financial reporting practice and minimum disclosure requirements for agricultural activities, including the fair value of biological assets.

There will be a differential reporting regime test based on income, assets and employees, which will not require you to report on biological assets. Otherwise the types of biological assets you will be required to report on will include:

• Live stock, IRD will set a standard tax value for livestock;
• Forestry, the process and methodology for valuation will come principally from the forestry industry;
• Orchards, vineyards and greenhouse plants, these are bearer assets, which may be troublesome to value;
• Heritage properties, which can have a high valuation but that value cannot be realised because there are development restrictions imposed on the property in recognition of its cultural value;
• Toanga, which are usually unalienable heritage items

In any financial report, the inclusion of biological assets may confuse the reality of the income profit and the wealth profit. There are many reasons it may provide misleading figures, the most obvious would be because the entity may have reported the value of heritage properties that do not actually generate any income but rather they are properties, which actually generate expenses for the entity, for example in maintainance costs.

For Maori entities, a number of non-economic assets such as lakes and riparian rights will need to be included in their audits under these proposed standards therefore it is very important that the new regime clarifies between cultural assets and commercial assets.

On face value this is not a regime that will benefit Maori organisations. It seems that it will raise the costs of producing audited accounts and the resulting figures will confuse the actual value of the Maori entity. As a shareholder in a Maori Land entity or a member of an iwi organisation, the capital value of the entity has no meaning, except for showing how it will provide for future generations. This is because the ownership of the entity is based on birthright and whakapapa. It is not an interest that can be transferred or alienated for profit.

For any regime that requires entities to account and report on biological assets there should be a clear classification system that takes into account the different types of ownership structures in a society. Therefore in New Zealand, it is important that any financial reporting regime on biological assets should provide for the difference between business assets and cultural assets.

Valuation of biological assets requires attention to be paid to the unique nature of the asset. For more information on biological reporting the following links are helpful:

The Treasury

An Overview of Biological Asset Valuation

Institute of Chartered Accountants Submission on accounting for agriculture