Valuation and presentation of biological assets: application of AASB 1037 by Earth Sanctuaries Limited

The world of accounting has functioned for many years with relatively few accounting standards devoted to specialised industry needs. In 1998 the Australian Accounting Standards Board and in 2001 the International Accounting Standards Board Standards issued standards devoted to agriculture. The Australian Standard, AASB 1037 Self Generating and Regenerating Assets (otherwise known as SGARAs) governs the accounting for all non-human living assets, however, the standard makes no explicit reference to agriculture or primary production. The more recently released International standard, IAS 41 Agriculture, governs the reporting of the transformation of biological assets. Both standards deal with the reporting of managed biological assets and apply essentially the same approaches despite the Australian standard requiring net market value while the International standard requires fair value. The seemingly minor difference in focus of AASB 1037 (towards the asset rather than the industry) has doubtlessly contributed to the adoption of the standard by Earth Sanctuaries Ltd (ESL), a listed firm involved in the commercial conservation of native fauna. ESL seeks to measure its operating performance in the area of conservation through application of AASB 1037. In this paper we analyse how ESL has interpreted and applied AASB 1037 and explore the consequent implications for measurement of net market value. It is argued that double counting of income is likely to occur when the value of future production is brought forward to the current accounting period revenue. In the case of ESL, property rights to native fauna are not firmly established and in this context valuing future sales is problematic. We therefore contend that, despite subtle differences between AASB 1037and IAS 41, the issues raised regarding the use of AASB 1037 need to be widely considered