ACCOUNTING FOR SGARAs: A STOCKTAKE OF ACCOUNTING PRACTICE BEFORE COMPLIANCE WITH AASB 141 AGRICULTURE

This paper reports the results of an investigation of the impacts of compliance with AASB 1037, Self-Generating and Regenerating Assets, for all listed Australian companies with material holdings of SGARAs. This investigation is useful for at least two reasons. First, the controversy and debate surrounding the standard raises the question of whether the consequences of application were as serious as predicted. Second, AASB 1037 was the first formal prescription on how to account for biological assets. As such, its consequences for reporting entities provide potential insights into the impact of AASB 141 Agriculture, which is applicable to reporting periods beginning on or after January 1, 2005. A review of the financial statements of a sample of Australian companies over the four-year period since first compliance with AASB 1037 revealed that the standard has had a significant impact on reported net profits. The median SGARA revenue expressed as a percentage of reported profits ranged from 14.0% in the year of compliance, through 20.0% one year after compliance, to 18% three years after compliance. There is also variability in the methods used to determine the net market values of SGARAs, that in turn influences the amount of the unrealized revenues or expenses included in profit. Only six out of 34 companies reported SGARAs valued at net market values observed in active and liquid markets, while most companies reported the best available indicator of net market value.