Open AccessFair value versus historical cost-based valuation for biological assets: predictability of financial information
Author(s) -
Josep Μ. Argilés,
Josep García-Blandón,
Teresa Monllau
Publication year - 2011
Publication title -
revista de contabilidad
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.378
H-Index - 18
eISSN - 1988-4672
pISSN - 1138-4891
DOI - 10.1016/s1138-4891(11)70029-2
Subject(s) - predictability , valuation (finance) , economics , actuarial science , value (mathematics) , financial economics , finance , mathematics , statistics
There is an intense debate on the convenience of moving from historical cost (HC) toward the fair value (FV) principle. The debate and academic research is usually concerned with financial instruments, but the IAS 41 requirement of fair valuation for biological assets brings it into the agricultural domain.This paper performs an empirical study with a sample of Spanish farms valuing biological assets at HC and a sample applying FV, finding no significant differences between both valuation methods to assess future cash flows. However, most tests reveal more predictive power of future earnings under fair valuation of biological assets, which is not explained by differences in volatility of earnings and profitability. The study also evidences the existence of flawed HC accounting practices for biological assets in agriculture, which suggests scarce information content of this valuation method in the predominant small business units existing in the agricultural sector in advanced Western countries