9
CHAPTER 2
LITERATURE REVIEW
2.1 The Development of Indonesian Accounting Standard
The Indonesian Institute of Accountants is the sponsoring body of the Financial
Accounting Standard Principles (or PSAK) in Indonesia. It has Dewan Standar
Akuntansi Keuangan (DSAK) that formulates and adjusts all of the standards.
Indonesian accounting standards have changed from time to time. The changes
are necessary to maintain the quality of financial information provided for both
external and internal users. The following sub-sections present the discussion
regarding the early stages of the Financial Accounting Standard Principles to the
convergence to IFRS and later, in the specific development of biological-asset
standard in Indonesia.
2.1.1 Earlier stages
Indonesian Institute of Accountants (or IAI) was established since 1973. Then,
IAI initiate a working group under the name of the Indonesian Accounting
Principles Committee (Komite Prinsip-prinsip Akuntansi Indonesia) to deal with
accounting standards which was Indonesian Accounting Principles (Prinsip-
prinsip Akuntansi Indonesia or PAI) before making a conceptual change in 1984
(Setiyono, Pinnarwan, Sugiri, & Suwardjono, 2011). From 1984 to 1994, PAI
was revised conceptually to synchronize it with 35 accounting standards in US
GAAP. Since then, the term has changed into Statement of Financial Accounting
Standards (Pernyataan Standar Akuntansi Keuangan or PSAK) until IFRS
convergence (Setiyono, Pinnarwan, Sugiri, & Suwardjono, 2011).
10
2.1.2 Convergence to International Financial Reporting Standards (IFRS)
As a member of G-20 countries, Indonesia should implement International
Financial Reporting Standards (IFRS). The convergence of SFAS to IFRS will
increase the quality of financial statements disclosed by companies in Indonesia.
As stated on November 15th
, 2008 in the G-20 forum in Washington DC, the
convergence to IFRS will:
1. Strengthen transparency and accountability
2. Enhance sound regulation
3. Promote integrity in financial markets
4. Reinforce international cooperation
5. Reform international financial institutions
IAI planned to implement all IFRS to SFAS in 2012; however some standards
encountered some objections and needed to be reviewed again. IAS 41
Agriculture is one of the standards that still in discussion and will be covered in
this study. This study evaluates the IAS 41 Agriculture and assesses the effect of
implementing the standards fully in Indonesia.
2.1.3 The Statement of Financial Accounting Standard (SFAS or PSAK) No. 32
Forestry
Before IAS 41 Agriculture, Indonesia has had an accounting standard for
biological assets which is PSAK 32 Forestry. After IFRS being released by the
IASB, all the accounting standard for specific industry were withdrawn. PSAK
32 regulates the accounting treatments specific for forestry industry (Ikatan
Akuntansi Indonesia, 2009). Essentially, PSAK 32 regulates a different
11
accounting regulation compared to IAS 41. The general insights of PSAK 32 are
as follows (Ikatan Akuntansi Indonesia, 2009):
1. PSAK 32 uses historical costs as the measurement while IAS 41 uses
fair value as a measurement and adjusts the value of the assets at the
end of financial period.
2. Also, unlike IAS 41 that only regulates the biological assets until the
point of harvest, PSAK 32 regulates the produce from the forest such
as timber, logs, and other produce.
3. PSAK 32 also regulates other non-forestry activities related to the
attempt to acquire the forest produce such as landscaping, roads and
bridge construction, and Bina Desa hutan.
4. Under PSAK 32 the plantations are depreciated or amortized whereas
in IAS 41 the depreciation or amortization costs only affect
plantations if there is no reliable fair value available in the market.
12
Table 2.1 below provides the differences between IAS 41 Agriculture and
PSAK 32 Forestry.
Table 2.1
A Comparison Between IAS 41 and PSAK 32
Key Factors IAS 41 (2003) PSAK 32 (revision 2009)
Regulates
Agricultural activity Forestry (planting, growing,
producing, manufacturing,
marketing also forest
maintenance)
Transformation of biological
asset until the point of
harvest
Agriculture produce will be
regulated under IAS 2
Inventories1
Also regulates the produce
Measurement Adjusted to fair value Recorded at historical cost
Profit
measurement
Fair value less cost to sell Using capitalized cost (historical
cost) less cost to sell
Depreciation Biological assets are not
depreciated
Not depreciated
If the fair value is not reliable
then use capitalized cost and
subtracts it by depreciation
and any impairment loss.
Classification
Classified into:
1. Consumable
biological assets
2. Bearer of biological
assets.
CBAs are treated under IAS
41.
Immature BBAs are treated
under IAS 41.
Mature BBAs are treated
under IAS 16 Property Plant
& Equipment
Classified into:
1. Natural forest (Hutan
alam)
2. Industrial forest (Hutan
tanaman industri/HTI)
1 IAS 2 Inventories covers producers of agricultural and forest products, and agricultural produce
after harvest as long as these products are measured at net realizable value, consistent with long-
accepted practice in agriculture industries (Mirza, Orrell, & Holt, 2008). The agricultural produce
after harvest is measured at fair value less cost to sell at the point it is harvested. This value becomes
its “cost” under IAS 2 Inventories (Mirza, Orrell, & Holt, 2008).
13
Table 2.1 (cont.)
Key Factors IAS 41 (2003) PSAK 32 (revision 2009)
Land Separately recorded under
IAS 16
Separately recorded under PSAK
16
Cost
capitalization
Planning, planting,
maintaining, safety,
harvesting, obligations to the
government and the
environment. Any unrelated
admin cost is not included in
production cost
Planning, planting, maintaining,
safety, harvesting, obligations to
the government and the
environment. Any unrelated
admin cost is not included in
production cost
After harvest Products are recorded as
inventory Products are recorded as inventory
Profit
recognition
Adjusted to fair value and
reported under profit and loss
at the end of the financial
year Not adjusted to fair value
Government
grants2
Government grants under
certain condition are reported
in the profit and loss
summary Not regulated
2.2 Insights into IAS 41 Agriculture
Agricultural industry runs differently in some aspects of other manufacturing
companies. Analysts can predict market trends, supply and demand, changes in
prices, and other significant terms for manufacturing companies. The kind of
information is available in the market. However, agricultural activities depend
heavily on nature. Hurricanes, tsunami, flood, or harvest failure cannot be as
easily predicted. Different area produces different agricultural products due to the
2 IAS 20 defines government grant as government assistance in the form of transfers of resources by
government to an entity in return for past or future compliance by the entity with certain conditions
relating to the operating activities of the entity. They exclude those forms of government assistance
that cannot be reasonably being valued and transactions with government assistance that cannot be
distinguished from other normal trading transactions of the entity. Government grants are
sometimes referred to as subsidies, subventions, and premiums.
14
diversity in geographical locations and climatic conditions (Bohusova &
Svoboda, 2013). Furthermore, each produce is unique; different area or different
animals and plantations need different treatments and length of growth. This
condition leads to a variety of the costs incurred and affecting the prices.
International Accounting Standards Committee (IASC) accommodates the unique
agricultural business activities by issuing IAS 41 Agriculture in February 2001.
In April 2001, International Accounting Standards Board (IASB) adopted the
IAS 41 Agriculture with the objective to have a uniform accounting standards
applied in the agriculture industry. There was no standardization in agricultural
sector before. The comparability of the financial statements for companies
engage in agricultural activities should increase by harmonizing accounting
standards in agricultural sector.
IAS 41 regulates the accounting treatment, financial statement presentation, and
the disclosures of financial activities for the biological asset of an agriculture
company.
IAS 41 defines agricultural activities as “the management by an entity of the
biological transformation and harvest of biological assets for sale or for conversion
into agricultural produce or into additional biological assets” (para. 5).
Biological assets included in the IAS 41 are living animals and plants. Biological
transformation includes all changes in the form of quantity and quality in a
biological asset. IAS 41 classified biological assets into consumable biological
assets (CBA) and bearer of biological assets (BBA). Harvested and ready-to-sell
agricultural produce such as milk, fruits, meat, crops, and similar produce are
15
prescribed as consumable biological assets. Meanwhile, fruit trees, grape vines,
livestock for producing the milk and other biological assets with similar nature
are prescribed as bearer of the biological assets. Later, in its amendments,
biological assets in the form of plants will only be considered as BBAs only if the
plants have no use other than as bearers. The transitions of biological asset
reporting standards are illustrated in Figure 2.1.
Figure 2.1
Biological Assets Reporting Standards Transitions (Source: Adopted from Mirza, Orrell, & Holt,
2008).
Selling
IAS 18
Produce is futher processed
IAS 2
Mature biological assets harvested
IAS 2 (Fair value less cost to sell becomes new cost)
Growing biological assets
IAS 41
Seeds planted (for plantations)
IAS 41
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Figure 2.1 illustrates the transition of biological assets reporting standards. IAS
41 regulates the biological assets only up to the point of harvest. After the
produce being harvested it will be treated under IAS 2 Inventories. Agricultural
products include fruits, milk, meat, wool, logs, etc. IAS 41 does not regulate the
process after harvest, such as converting fruits into drinks, wool into thread, and
logs into paper. After the produce being sold, the revenues are recorded under
IAS 18 Revenue provisions3.
2.2.1 Accounting Treatments under the Early IAS 41 Agriculture
As other accounting standards under IFRS, IAS 41 Agriculture applies fair value
measurement 4
. IAS 41 stated that biological assets are measured at fair value less
costs to sell. Costs to sell include commissions, taxes, and duties (Mirza, Orrell,
& Holt, 2008). Assets can be grouped for measurement purposes, for instance
according to the age, quality, or type. Companies should determine the fair value
used in reporting through a few ways. First, for assets that have an active market,
companies can use the most relevant current market price available 5
. Second,
companies can also use the most recent transaction price in the market.
Alternatively, companies can use the market prices of an equivalent asset. In the
case where fair value is not available, companies can try to estimate the prices by
3 According to IAS 18, revenue will be recognised when there is economic benefits related to the
transaction that will flow to the entity with measurable amount (IASB, 2001). 4 IAS 41 defines fair value as the amount for which an asset can be exchanged or a liability settled in
an arm’s-length transaction between knowledgeable and willing parties. The fair value of an asset is
based upon the present location and condition of the asset.
5 Active market is a market where the items traded are homogeneous, willing buyers and sellers are
normally found at any time, and the prices are available to the public (Ankarath, Mehta, Ghosh, &
Alkafaji, 2010).
17
referring to prices of similar assets or sector benchmarks recent transactions
(Mirza, Orrell, & Holt, 2008).
Biological assets also need to be adjusted to its fair value at the end of the
accounting period. The adjustments should be recognized in the profit and loss
statement with all the information related to the fair value stated. In the case
when there is no active market for the asset and fair value cannot be justified or
be considered as reliable, companies are allowed to use costs less any
accumulated depreciation or impairment, as stated in the IAS 41. Companies
should state all consideration as why the fair value cannot be applied.
Some disagreements arise due to this fair value method. IASC stated that fair
value measurement is the measurement that reflects the value of biological assets
because due to the increasing value from time to time in accordance with the
growth of the assets (Mirza, Orrell, & Holt, 2008). Rather than a historical
method, the fair value method is considered as the better indicator for the future
economic benefits expected from a biological asset (AOSSG, 2011). However, as
other IFRS, IAS 41 is principles based, which allows more rooms to apply
professional judgment (Wiecek & Young, 2009). This will allow accounting
records in a way that is more flexible with distinctive economic and business
circumstances whilst allow bias in the information provided.
The accounting treatments of IAS 41 are in adherence to the given characteristic
of biological transformation stated in the IAS. The revenues are increasing along
with the growth process (Aryanto, 2011). For example, the more the fruits grow,
18
the higher the selling price will be. However, the fair value method is considered
as inappropriate for mature bearer of biological assets (BBAs), as the mature
BBAs do not undergo any biological transformation anymore (IASB, 2012a).
Mature BBAs, especially plantations, function similarly to production machines
in a factory thus it is more appropriate to classify mature BBAs into IAS 16
Property Plant and Equipment. Furthermore, the time needed for biological
transformation varies across biological assets. For example, teak trees will need
25 years until maturity while corns need less than half a year. The changes of
price of corns will be more rapid than the teak trees. The fair value of a teak tree
probably will not be a lot different than a week before whilst there will be
considerable changes in the fair value of corn.
Market prices also vary between areas and a lot of assumptions are needed. In
some cases, the fair value is far from prices of the market of commodities (Elad
& Herbohn, 2011). Therefore, financial statement users deem the fair value as
unreliable and tend to ignore the information (IASB, 2012a). The fair value
measurement also leads to earnings volatility. With the rise and fall price
environment, the inclusion of fair value in the profit and loss summary and
balance sheet will mislead the information because end users do not look at fair
value as it is not a cash item (AOSSG, 2011). Companies can also raise or drop
the earnings in financial statements for companies’ interests due to subjective
valuation (Fisher, Mortensen, & Webber, 2010) in other words, increasing the
possibility of earnings management. The standards also fall short to address the
harmonization between valuation methods used (Elad & Herbohn, 2011). Under
19
these arguments, IAS 41 does not fulfil the comparability and reliability
principles that IFRS promotes.
2.2.2 The Amendments of IAS 41 Agriculture
Critics lead to a conclusion that IAS 41 needs improvements. Asian-Oceanian
Standard Setters Group (AOSSG), in November 2011, has appealed to the IASB
for improvements in IAS 41 Agriculture. AOSSG consists of accounting standard
setter authorities in Asia and Oceania, including representatives from The
Institute of Chartered Accountants of India (ICAI), Malaysian Accounting
Standards Board (MASB), Accounting Standards Board of Japan (ASBJ), China
Accounting Standards Committee (CASC), Indonesia Institute of Accountants
(IAI), Korea Accounting Standards Board (KASB), and Hong Kong Institute of
Certified Public Accountants (HKICPA).
AOSSG proposes to distinguish the treatments of CBAs and BBAs under IAS 41
Agriculture. AOSSG recommends that mature BBAs should be included within
the IAS 16 Property, Plant and Equipment (PP&E) as the role of mature BBAs is
closer to PP&E. AOSSG also recommends two options for immature BBAs
measurement–under IAS 41 (at fair value) or under IAS 16 (at cost) - until
maturity. The fair value approach will be suitable for BBAs which can be defined
as both consumer and bearers for example hens and cows, while cost approach
will be suitable for BBAs as the sole bearers for example palm oil trees for palm
oil.
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Supporting the recommendation, MASB stated that according to the survey (as
quoted in AOSSG, 2011) the majority of analysts specializing in plantation
companies find fair value information within profit or loss for BBAs are not
useful due to several reasons:
1. By using fair value, financial statements will be distorted due to subjective
valuation. Thus, loss its purpose to reflect the reliable view of companies’
earnings.
2. IAS 41 relies much on assumptions. However, companies use different
assumptions therefore making IAS 41 point less.
3. Fair value information is useless unless supported with other information
such as area, productivity, selling price assumed, age profile, and other
information related to the calculation.
4. Fair value measurement reduces the reliability and understandability of
financial statement presentation because end users do not know the
computation of the fair value.
5. End-users always exclude the biological gains and losses from earnings and
do not look at fair values as it is not cash items.
2.2.3 Recent Status of IAS 41 Agriculture
As a response to AOSSG, IASB (2013) decides to restrict the BBAs only to
plants that have no CBAs attributes. BBAs will be covered under IAS 16. The
recognition and disclosure of BBAs under IAS 16 can be applied without
modification. Accounting treatments for BBAs will be similar to machinery
before being placed into production. Therefore, the BBAs are measured at
accumulated cost. However, CBAs and other produce grows on BBAs will still
21
be measured under IAS 41. For example, before the fruit trees can produce any
fruits, the trees will be treated under IAS 41; after the trees mature can produce
fruits, then the fruits will be treated under IAS 41 until being harvested whilst the
trees will be treated under IAS 16. These amendments affected the IAS 16
Property Plant and Equipment as well as IFRS 1 First Time Adoption of
International Financial Reporting Standards. IASB targets to publish the final
revision of IAS 16 and IAS 41 in the first quarter of 2014 and will be effective in
2015.
2.3 Recent Implementation of IAS 41 Agriculture
2.3.1 Asia
Agriculture plays a significant role in developing countries including third-world
countries with emerging economies. Asian countries produce and export a great
amount of agricultural produce across countries. For example, Indonesia is
known as the top producer of palm oil and rubber in the world; China has the
largest agricultural output in the world; and India is known for producing tea
(IASB, 2012a). IAS 41 for BBAs has been a major problem across Asian
countries. For instance, Indonesia and Malaysia have adopted IAS 41 with
modification for certain assets (IASB, 2012a). These countries have not fully
adopted IAS 41 because there is a possibility of the IAS 41 amendments
regarding BBAs. Thus, companies delay the full adoption of IAS 41.
In Thailand, the adoption of IAS 41 has some problems because the reliable fair
value are not available in the market, especially for easy buy and sell market
because it is still inconstant in Thailand (Chalomklang, 2012). In the study of the
22
orchard business in Thailand by Chalomklang (2012), the SME in Thailand have
not adequately trained to apply IAS 41 in their businesses creating some
problems in the financial reporting.
The problems are quite similar to the fair value method. The method is
subjective, complex, and difficult to measure especially when there is no active
market for the assets. Chalomklang (2012) stated that practitioners do not
understand the basic of IAS 41. The definition of BBAs becomes bias in certain
countries such as India because differently from other countries; cows have no
consumable attributes in India. Companies that have plantations with various
maturities also face some problems because IAS 41 gives the same treatment for
all biological assets.
2.3.2 IAS 41 Adoption Worldwide
IAS 41 was released in 2001. European countries have adopted it since 2005. The
adoption of IAS 41 in European countries was not without problems. For
example, Bohusova & Svoboda (2013) detected that the application of IAS 41 in
wine industry led to earnings volatility; and that the fair value measurement was
subjective. Most French companies value their biological assets by using
historical cost, whereas Australian and British companies commonly using the
fair value method (Elad & Herbohn, 2011). Furthermore, Nobes (as quoted in
Elad & Herbohn, 2011) argued that systematic differences in accounting
practices still present despite of the adoption of international accounting
standards.
Elad & Herbohn (2011) stated that various proxies for fair value are used across
countries such as net present value, independent/external valuation, net realizable
23
value, and market price. Various proxies result in different ways of accounting
treatments which mean different perspective, judgments, and assumptions
resulting in incomparability between financial reports. Thus, IAS 41 has failed to
achieve the international comparability of accounting practices.
2.4 IAS 41 and Its Importance for Agriculture Industry in Indonesia
This section reviews the structure of agriculture industry in Indonesia and
highlights the importance of Indonesia agriculture industry. According to Badan
Pusat Statistik (BPS), in 2010 there are 237,641,326 people living in Indonesia
with 41,494,941 people work in the agricultural industry. The last number
represents almost 20% of the total population. Hence, the agriculture industry has
a significant role in the Indonesian economy.
Statistical data from BPS suggested that in 2012 the total output of exported
agricultural produce was around 35,263,291,518 kilograms or equivalent to
US$38, 241,481,245 with a positive balance of 14,374,723,585 kilograms or
US$23, 140,930,575 means Indonesia exports more than importing agricultural
produce. In 2012, the interim statistical data from BPS suggested that the
agriculture industry contributes 6.9% to the total Gross Domestic Product
(GDP)6. This makes agriculture industry the second largest contributor to the
total GDP after basic industry in Indonesia7. Agriculture industry represents 14%
to 15% of national employment in Indonesia. The main commodities are rubber,
coconut, sugar cane and palm oil. In terms of productivity, palm oil plantation
6 GDP is the market value of goods and services produced within a selected geographical area (usually
a country) in a selected interval in time (often a year) (Leamer, 2009, pg. 19). 7 Basic industry is the industry that processed raw material to be used by other industries (Pusat
Bahasa Departemen Pendidikan Nasional, 2007).
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productivity increased by 1.28% in 2012 and by 5.51% for sugar cane (Deptan,
2012). The data also indicated that the agriculture industry in Indonesia is an
important industry in the Indonesian economy. Therefore, investigating the
potential effect of adopting IAS 41 Agriculture fully on the financial performance
of agriculture companies in Indonesia is an urgent need.
2.4.1 Current State of Accounting Standard for Agriculture in Indonesia
There has been no financial accounting standard specifically addressing
agriculture industry in Indonesia. The future adoption of IAS 41 Agriculture will
create the first and only financial accounting standard in Indonesia that directly
addresses the agriculture industry. IAS 41 Agriculture is now under the review of
DSAK. In current state, agricultural companies in Indonesia have adopted the
IAS 41 with modifications as shown in the 2012 financial performance. Further
information regarding the modifications is presented in the following sub-section.
2.4.2 The Modified IAS 41 in Indonesia
Agriculture companies in Indonesia have implemented accounting treatments that
are the modification of IAS 41. The modification usually involves the application
of the historical cost method and the depreciation of BBAs as PP&E. The
different maturity time between plants becomes an issue because it creates
earnings volatility. Additionally, some BBAs have no active market. For
example, there is no active market for palm oil tree or grapevines as it has to be
with the land underneath. Thus, fair values are not accessible for single asset sold
separately and may result in false or misleading information in the presentation
of financial statements.
25
The following table presents the modified IAS 41 by the companies in detail.
Data for the modified IAS 41 come from the 2012 financial reports of all
agricultural companies in Indonesia. Accounting policies sections of the reports
are the main sources of accounting treatment information listed in Table 2.2 as
the modified IAS 41 applied by agricultural companies in Indonesia.
Table 2.2
A Comparison Between the Modified IAS 41 and IAS 41
Aspects
Practiced by agricultural
companies in Indonesia –
the modified IAS 41
IAS 41
Areas to
regulate
Agricultural activity
Transformation of biological asset
until the point of harvest
Agriculture produce will be
regulated under IAS 2 Inventories
Measurement Recorded at historical cost Adjusted to fair value
Profit
measurement
Using capitalized cost
(historical cost) less cost to
sell
Fair value less cost to sell unless
fair value is considered unreliable
Depreciation Immature plants are not
depreciated
Immature biological assets are not
depreciated
Mature plants are
depreciated
If the fair value is not reliable then
use capitalized cost subtract by
depreciation or any impairment
loss.
Classification
Classified under Plantation
or Inventory
Some companies divide the
plantation into immature and
mature plantations.
Classified into:
1. Consumable biological
assets
2. Bearer of biological assets.
CBAs are treated under IAS 41.
Immature BBAs are treated under
IAS 41.
Mature BBAs are treated under
IAS 16 Property Plant &
Equipment
Land Separately recorded as a
fixed asset
Separately recorded as a fixed
asset
26
Table 2.2 (cont.)
Aspects
Practiced by agricultural
companies in Indonesia
– the modified IAS 41
IAS 41
Cost
capitalization
Planning, planting,
maintaining, safety,
harvesting, obligations to
the government and the
environment. Any
unrelated admin cost are
not included in production
cost
Planning, planting, maintaining,
safety, harvesting, obligations
to the government and the
environment. Any unrelated
admin cost is not included in
production cost
After harvest Products are recorded as
inventory
Products are recorded as
inventory
Profit
recognition Not adjusted to fair value
Adjusted to fair value and
reported under profit and loss at
the end of the financial year
Government
grants
Government grants under
certain condition are reported in
the profit and loss summary
Differences between the practiced modified IAS 41 and the IFRS version of IAS
41 in Indonesia show some problems to adopt IAS 41 fully. As discussed before,
practical matters such as the potential unavailability of data required and strategic
matters such as the impact of the full adoption of IAS 41 on the financial
performance of agriculture companies can be the sources of the problems. The
proposed study will focus on the strategic side of IAS 41 that is the impact of the
full adoption of IAS 41 on the financial performance of the agriculture industry
in Indonesia.
27
2.5 Prior Studies on IAS 41 in Indonesia
Agriculture industry supports the economy of Indonesia as well as other
developing countries. The Indonesian agriculture industry has many different
aspects due to the climatic conditions and wide range of locations. Indonesia has
two seasons and numerous biological entities. This results in the large numbers of
variants of agricultural biological assets and products in Indonesia.
Chen, Gul, & Su (1999) compared the earnings reported under GAAP that used by
Chinese companies at that time with earnings reported under IAS. Using
companies from the Shanghai Stock Exchange, the study found that there were
significant differences in the earnings reported under Chinese GAAP from those
based on IAS. The study revealed that 15% of the reported profit became loss due
to the differences in accounting standards and financial rules as well as unusual
market-wide events. Indonesia as well as China, has a wide area of agriculture.
The geographical state results in varieties of the agricultural products, as well as
plantations and livestock. The effect of agricultural markets in certain locations
might affect others; the prices will also differ from one area to another, creating
problems for companies with branches located in some different areas.
Regarding the forestry industry in Indonesia, the study about timber conducted by
PricewaterhouseCoopers (2009) reported that markets for timber are limited and
users may not appreciate the judgments and uncertainties that are inherent in the
valuation of forest assets8. In the studies, PricewaterhouseCoopers (2009) stated
that when the companies used fair value method, the companies typically based the
8 Big Four Public Accountant Firm
28
fair value calculations on the estimated current volume of standing timber and the
unadjusted current market price. In addition, the calculations usually presented
with no further disclosure regarding the applied price-variables in details. Thus, the
implementation of IAS 41 in the Indonesian forestry industry should be observed
and developed to be perfected.
To anticipate the demand for full convergence to IAS 41, PT. Perkebunan
Nusantara I-XIV (Persero) and PT. Rajawali Nusantara Indonesia (2012) releases a
guide for state-owned companies entitled Pedoman Akuntansi BUMN Perkebunan
Berbasis IFRS. This guideline has adhered fully to IAS 41 Agriculture. The
guideline indicates significant interest on the prospect to implement fully IAS 41
although the guideline is only for government-owned companies. Therefore,
studies that will present the impact of the full adoption of IAS 41 on the financial
performance of agricultural companies in Indonesia are urgently needed.
However, Yapa (2011) claimed that education and training regarding IFRS and
financial insights in Indonesia are still inadequate. Financial news is not
sufficiently provided in the financial newspaper and in other media such as TVs or
magazines. Yapa (2011) also mentioned that the journals and websites available in
the IAI website need improvements. Thus, the studies for IFRS implementation in
Indonesian companies are significant for the development of the Indonesian
economy.
This study specifically addresses the implementation of IAS 41 Agriculture in
Indonesian agricultural companies. The studies on IAS 41 have been done
29
minimally in Indonesia even though it is urgently needed. Therefore, this study
provides new insights regarding the IAS 41 Agriculture and the agriculture
industry in Indonesia as well as the impact of convergence to IAS 41 Agriculture in
Indonesia on the financial performance of agriculture companies in Indonesia.
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