Procedimiento de ensayo

In many developing economies, agriculture provides the majority of the population with a livelihood. It is also a significant contributor to the annual national gross domestic product (Cojocaru & Bostan, 2013). It enables improved living standards and slows down urbanisation by creating sustainable employment in rural areas (Rosentale and Ore, 2013), but costs are also higher due to remoteness from sales markets and a lack of economies of scale. Research in this area has focused firstly on cost:benefit factors in relation to complying with the reporting requirement of IAS 41 and, secondly, with the socio-economic questions raised by the application of IAS 41 in developing economies.

Argilés and Slof (2001) warn of the potential additional costs of implementing IAS 41 in an industry where lower managerial skills and a lack of economic means are the norm. Elad (2004) suggests that the fair value model proposed in IAS 41 will not be understood by many UK farmers, and will be totally incomprehensible to those individuals engaged in agricultural activities in developing countries. Another major point raised by Elad (2004) is the fact that IAS 41 has no provision for reverting to historical cost in situations where fair value can only be obtained at excessive cost. He also indicates that the requirement to revalue biological assets on an annual basis may prove costly, especially in less developed countries.

Fisher in a 2012 article concerning bearer biological assets (BBAs) in Accountancy magazine comments on the work being undertaken by the IASB’s emerging economies group:

The IASB’s emerging economies group has reported that the issue for BBAs is extremely important for emerging economies in which agricultural activity plays a significant role. The requirement to measure BBAs at fair value under IAS 41 has caused significant implementation problems in those economies, in particular because of the cost and complexity of annual valuations and the huge impact on annual profits of recognising fair value changes. (Fisher, 2012:69)

This article contradicts earlier research by Argilés, Blandón, and Monllau (2009, 2007) who found an insignificant difference in reported profits by small holdings in the agricultural sector in the European Union who were using fair value compared to those using historical cost to

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value their biological assets. They suggest that the use of fair value “avoids the unaffordable complexities of cost calculation for biological assets for the predominant small holdings in the agricultural sector” (Argilés, Blandón, & Monllau, 2009: 8).

The only existing South African study to address the application problems raised by fair value reporting in the agricultural sector is one by Maina and Wingard (2013) which focuses on small and medium-sized entities in Kenya. This study highlights the difficulties faced by agricultural entities operating in an environment where there is an absence of an active and transparent market. It also discusses the problems associated with the increased costs involved in trying to obtain fair values for biological assets in these circumstances. It suggests the use of virtual commodity trading as a way of reducing the costs involved in fair value reporting for smaller entities operating in developing countries like Kenya, South Africa and other African countries.

The question of cost:benefit is addressed in a number of studies on IAS 41 (Elad, 2007; Herbohn, 2006; Ore, 2011; Rosentale and Ore, 2013). The old IASC Framework for Financial Reporting (1989) which was extant when IAS 41 was issued in February 2001 raised the question of the balance between benefit and cost as a pervasive constraint. The revised Conceptual Framework (IASB, 2010b) indicates that, prior to making any changes in any IFRSs, the IASB assesses whether the benefits of reporting the required information are able to justify the additional costs of providing that information. Yet IAS 41 makes no provision for the possibility of reverting to the use of historical cost in situations where the costs clearly outweigh the benefits. The IASB acknowledges cost as a pervasive constraint in relation to providing financial information, but asserts that reporting financial information that is relevant and that faithfully represents the financial realities will result in the “more efficient functioning of capital markets and a lower cost of capital for the economy as a whole” (IASB, 2010b: QC37).

Elad asserts in his 2004 article, Fair Value Accounting in the Agricultural Sector: Some implications for International Accounting Harmonisation, that

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… the most common criticism of the IASC related to its lack of consideration of the accounting needs of less developed countries and its exclusive focus on measurement and disclosure issues that are intended to protect equity investors in industrialised countries with well developed stock markets (Elad, 2004: 622).

He elaborates on this point in his 2007 article, stating that the IASB standards are designed with only one social constituency in mind, namely capital market investors and that “the fair value approach is underpinned by neoclassical economic ideals that are not conducive to emancipatory accounting” (Elad, 2007: 755).

It may be argued that this problem has subsequently been addressed by the IASB through the introduction in 2009 (IASB, 2009b) of International Financial Accounting Standards for Small and Medium-sized Entities (IFRS for SMEs).

IFRS for SMEs (IASB, 2009b) is a concerted attempt by the IASB to address the question of cost:benefit constraints, in particular in relation to smaller entities with greater cost constraints. It is also an attempt by the IASB to provide an affordable financial accounting framework for developing economies without large active capital markets.

Section 34 of IFRS for SMEs, which deals with Specialised Activities, encourages entities engaged in agricultural activities to use the fair value model to value their biological assets where fair value is readily determinable without undue cost or effort (IASB, 2009b). Where fair value can only be obtained at excessive cost, the cost model is allowed. In addition, IFRS for SMEs stipulates that an entity may only recognise a biological asset or agricultural product when the fair value or cost can be measured without undue cost or effort (IASB, 2009b).

It would appear from the wording in Section 34 of IFRS for SMEs that this Standard will go a long way towards solving many of the issues raised in the literature concerning the cost of obtaining fair values, particularly for small-scale family-owned farming entities, many of which exist in South Africa and further north in Africa and in other developing economies. This is perhaps an area for further research in the future.

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A more recent article by Jones and Solomon (2013) contextualises the cost:benefit debate against a wider global backdrop. While Elad (2007: 773) argues that “by forging a link between accounting and market values FVA reinforces commodity fetishism because it ignores the social and environmental relations of production that lie beneath market exchanges”, Jones and Solomon argue that it is precisely the “emancipatory potential of accounting” that compels the pursuit of clear and comprehensive information in accounting even if the cost of achieving it is high. They argue that, while integrated reporting and the process of producing sustainability reports has raised awareness of environmental issues and the impact of commercial activity, and particularly agricultural activities, on the environment, “there is a need to develop new methods of recording, measuring and disclosing biodiversity” (Jones & Solomon, 2013: 677).

While a lot of the research on the application of IAS 41 to entities in developing economies has focused on the impracticalities of obtaining fair values and the excessive costs involved in doing so, other researchers have focused more on the socio-economic questions that the application of IFRS, and IAS 41 in particular, raises in relation to entities in these economies as part of a critical analysis of IFRS in general.