The valuation of standing trees under IAS 41 - An analysis of accounting practices before and after the amendment in 2009

Abstract: The present study examines the valuation methods 30 forest-owning companies use to determine the fair value of their standing forests under International Accounting Standard 41 'Agriculture'. Comparison with regards to the assumptions made in applying fair value is conducted over time for the reporting periods 2005 to 2009 and among companies. Identified differences and similarities are clustered and analyzed in patterns. As the standard was reviewed and amended in 2009, the companies' assessment and reaction to the amendment is in special focus.The study finds that the net present value method is used to determine fair value by most of the companies. Assumptions made by the forest owners are dispersed, but similarities especially among Swedish companies are observable. Significant learning processes or developments over time could not be identified in most cases. However, a movement of the companies' disclosures towards the use of the standard's wording has emerged. Further, the amendment to IAS 41 that allows for taking 'additional biological transformation' into account when valuing immature forest holdings, appears to have been triggered by industry practice. Obviously, the standard setters approach the preparers in order to improve comparability.