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Chapter 5 presents the results of this research, which is the first research focusing exclusively on the financial reporting of biological assets and agricultural produce by South African agricultural companies.

This research shows not only that the measurement methods used by companies to value their biological assets, but also the nature and extent of both compulsory and voluntary disclosures of these assets are sector-specific. This is consistent with the findings of previous international research (Clavano, 2014; Dowling and Godfrey, 2001) indicating that preferences for a particular measurement method are sector-specific.

The first issue identified as requiring to be addressed, in relation to the research objective as stated in Chapter 1, was the extent to which South African public agricultural companies are applying the fair value requirements of IAS 41 to the valuation of their biological assets and agricultural produce at the end of each reporting period. A comparison of the research results in Chapter 5 with this first issue leads to the following conclusions:

o There are distinct differences between the methods used by companies with material holdings of plants and livestock to measure their biological assets. All the companies with material holdings of plants are using a fair value method to value their biological assets. While 86% of companies with consumable livestock are using a fair value method to value their biological assets, only 57% of companies with material holdings of bearer livestock are using fair value to measure these assets. The remainder, in both cases, are using historical cost to value these assets.

o While all companies with material holdings of plants are using a fair value measurement method to value their biological assets, the specific methods used varied. All the companies with bearer plants used discounted future cash flows to

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value these assets, while 80% of companies with multi-annual consumable plants and 83% of companies with short-term consumable plants used this method. The remaining 20% of companies with multi-annual consumable plants and 17% of companies with short-term consumable plants calculated the fair value based on an adjusted market price for a similar asset.

o Companies with livestock that did use a fair value method furthermore selected different valuation methods for their bearer and consumable livestock. This is logical, as the potential cash flows from bearer livestock differ considerably from those from consumable livestock. Excluding the 43% of companies with bearer livestock that measured these assets at cost less accumulated depreciation and impairment, 29% used an adjusted market price for a similar asset, with the remaining 28% evenly split between the DCF model and a combination of fair value methods with no further details provided. Of the companies with consumable livestock, 43% used a combination of adjusted market price, sector benchmarks and industry data to value this livestock, 29% used a combination of fair value methods with no further details provided and 14% used a DCF method to value these assets.

o While 88% of companies said that they measured their agricultural produce at point of harvest at fair value less estimated costs to sell, over 90% of these companies are not providing any further information on the valuation techniques used to value their agricultural produce.

A comparison of the research results in Chapter 5 with the specific issues listed in Chapter 1 relating to the disclosure by companies of their biological assets and agricultural produce in their annual financial statements, leads to the following conclusions:

o Compliance with the compulsory disclosure requirements of IAS 41 is high among companies using fair value to value their biological assets, with an average compliance of 79%. Within this group, companies with plants had higher compliance at 87% compared to those with livestock at 67%.

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o Compliance of companies with the compulsory IAS 41 disclosures relating to their agricultural produce was low, with an average compliance of only 46%, and very little difference between companies with plants at 48% and those with livestock at 43%.

o Compliance with the additional compulsory disclosures listed in IAS 41 by companies that had used the historical cost model to value their biological assets was low at only 43%. All the companies had complied with the same three disclosures but had not provided any further disclosures.

o Most South African companies with material holdings of plants or livestock are providing some of the voluntary disclosures recommended in IAS 41. Companies with material holdings of plants are providing an average of 64% of these disclosures, while companies with material holdings of livestock are providing an average of 49% of these disclosures.

o All the companies with material holdings of plants are also providing extra voluntary disclosures in addition to those recommended in IAS 41. By contrast, only 43% of companies with material holdings of livestock are providing any additional voluntary disclosures.

A further noteworthy finding of this study is that none of the companies with material holdings of plants or livestock use the unadjusted recent price in an active market to value their biological assets. Also significant is the fact that only one company elected to use historical cost less accumulated depreciation and impairment to value their consumable livestock and none of the companies used this method to value either their bearer or consumable plants. This may lead one to question whether the recent removal of bearer plants from the scope of IAS 41 and their inclusion in IAS 16 really is a step in the right direction by the IASB.

The application of IAS 41 has been fraught with controversy since its inception. There has been significant research on its application to various industries and across different regions and countries. What is clear is that the IASB is committed to the use of fair value as the most

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effective way of capturing the financial consequences of the processes of biological transformation. The application of the compulsory and voluntary disclosures recommended by IAS 41 as well as use of additional voluntary disclosures by agricultural entities may prove costly, but also offer agricultural entities and those who rely on their financial reporting more relevant and more reliable information.

There are, however, two further questions which remain to be addressed. The first is whether and to what extent the introduction of IFRS 13, as well as the recent amendments to IAS 41, will succeed in reducing the diversity of accounting methods applied to biological assets, and so overcome major concerns relating to the application of IAS 41, as highlighted in previous research.

The second question is whether these amendments and the introduction of IFRS 13 will lead to financial statements that reflect an increase in both the fundamental qualitative characteristics of relevance and faithful representation as stated in the Conceptual Framework for Financial Reporting issued by the IASB in September 2010, as well as the enhancing qualitative characteristics of comparability, verifiability, timeliness and understandability (IASB, 2010b).

Only future financial reporting, accompanied by accurate and adequate research and commentary on it in South Africa, elsewhere in Africa, and in other regions globally will provide informative answers to these questions. Some preliminary steps towards such commentary in South Africa are indicated below.