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Financial Reporting Down on the Farm: US compared to International Guidance

Fri, March 15, 1:30 to 3:00pm, Meeting Hotel, TBA

Abstract

Agriculture is an important element of the global economy but agriculture accounting has had little attention from accounting standard setters as most recognition and reporting guidance focus on production, marketing or tax reporting.
This exploratory study reviews and illustrates current US and international agriculture accounting recognition and reporting. The study also explores the advantage and disadvantages should the US elect to adopt the international accounting guidance for agricultural accounting recognition and reporting.
Current US agricultural accounting guidance is directed by FASB Codification 905 Agriculture that presents an overview, scope, glossary and other background material for each subtopic guidance but does not provide any historical background, due process discussion, illustrations for other than cooperatives, or a summary of the accounting and reporting. The subtopics within Topic 905 include information on financial statement, receivables, investments, inventory, fixed assets, liabilities, equity, revenue recognition, and cost of sales. Agriculture goods for sale and long-lived assets are covered in Codification Sections other than 905.
FGAP industry guidelines address how to present farm information fairly when preparing documents for use by agricultural lenders and investors. In addition to financial information, the guidelines include 21 financial ratios and measures that specifically address farm management.
Should an adoption of the International Financial Reporting Standards (IFRS) occur, the US agricultural guidance would be replaced by IAS 41 – Agriculture. While the conceptual framework is quite similar, evasive differences may cause financial reporting differences (Plumlee 2010). A not so subtle difference would occur in agricultural accounting recognition and reporting.
IAS 41 applies to biological assets, agricultural produce at the point of harvest and government grants received for agriculture activities including the transformation of the assets. The most controversial part of IAS 41 is the requirement that increments or decrements in the fair value of biological assets, less the estimated point-of-sale costs be recognized as revenues or expenses in the income statement that result in significant volatility. The income statement format and revenue measurements are other significant differences from current US reporting.
A guidance change to IAS 41 would have major ramifications and would present opportunities for point-in time and longitudinal research of agriculture accounting practices.
The complete paper with references is available upon request to the first author.

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