EPPA4716 Kajian Kes Integrasi

Soh Yong Chee

A146834
Neoh Pui Ging
A143353
Gun Ee Wei
A143454
Tan Yee Tung
A143107
Tan Cheng Ying
A146813
Loo Hui Min
A143108

1
 Fair Value Historical Relevance Reliable Conclusion
Problem cost

Problem Statement

In what ways does MFRS 141 result

in a trade off between relevance
and reliability in financial
reporting?

2
 Fair Value Historical Relevance Reliable Conclusion
Problem cost

Fair Value Model (General)

Advantages of valuation at fair value Disadvantages of valuation at fair value

• Timely information • It loses the historical perspective

• It provides an accurate valuation • It reduces investor satisfaction
• More information in the financial • Misleading information
statements than historical cost
• It is the most agreed upon standard of
accounting
• It provides a method of survival in a
difficult economy

3
 Fair Value Historical Relevance Reliable Conclusion
Problem cost

Historical cost model(General)

Advantages of valuation at fair value Disadvantages of valuation at fair value
 Objectivity- Reports on the financial position of the  Out-dated figures
business are objective and can be verified by
independent documentary evidence.  Lack of relevance

 Simplicity- Does not require constant work,  Misleading operational levels

estimating the changing current market values of
assets.

 Consistency- consistent with the broad goals and

purpose of accounting.

 Conservative- It does not recognize or include in

the accounts of the business, assets appreciation
profits that have not yet been proven or secured by
an actual current market sale.
4
 Fair Value Historical Relevance Reliable Conclusion
Problem cost

Fair Value Model (Biological assets)

Advantages of valuation at fair value Disadvantages of valuation at fair value
• provide relevant, comparable and understandable • If there is no active market, fair value is not reliably
measurement of future economic benefits . ascertainable.

• can accurately portray the value of an accreting
asset.
• revenues reported during each period and not at
the point of harvest and subsequent sale.
• market prices fluctuate over the time.
• the assessment of fair value can lead to the
reporting of unfeasible gains or losses from
overestimation.

5
 Fair Value Historical Relevance Reliable Conclusion
Problem cost

Relevance
OLAM had disclosed some of the key parameters used for the valuation in its
R annual reports, which included :

• The average lifespan of trees for plantations : 15 to 25 years;

• The discount rates for future cash flows: 12 to 13 per cent per annum;
• The annual rate of inflation: 0 to 4 per cent per annum;
• Information on the location, soil type and infrastructure for estimating the
yield; and
• The prevailing market price of the biological assets after harvest between
stock market index and exchange rate in ASEAN+3 countries

6
 Fair Value Historical Relevance Reliable Conclusion
Problem cost

Relevance
Historical Cost Method Revaluation Method

• Assets: • Assets:
original purchase value market value
• Net book value may • Able to better assess
differ significantly from the value of potential
their true worth benefits
• May underestimate
the real worth of
assets

7
 Fair Value Historical Relevance Reliable Conclusion
Problem cost

Reliable
Muddy Waters’ view point
• Farmers future crops as gains
• Mark-to market valuation model
• Consisted of commodities

OLAM’s defence
• Applied IAS 41 appropriately
• Fair value estimated with reference of professional
valuation
• The “non- cash accounting gains” were in accordance
with the accounting treatments prescribed by IAS 41

8
9
10
11
12
13
 Fair Value Historical Relevance Reliable Conclusion
Problem cost

Reliable
OLAM’s view point
• Comply with requirement of IAS 41 to include the
unrealized gain or loss in the profit and loss
statement

Muddy Waters’ defense

• The guidance letter released by the Hong Kong
Exchanges and Clearing Limited (HKEx) which did not
include the use of unrealized fair value gains arising
from biological assets .* page 5

It is reasonable that OLAM comply of IAS 41 to recognized the unrealized gain or

loss instead of following the requirement of HKEx.

14
 Fair Value Historical Relevance Reliable Conclusion
Problem cost

Conclusion
C • Three tests
• Fair value model is likely to be relevant for investors and
other users of financial statements
• Ensure the competence of valuers, valuation methodologies,
assumptions and inputs used in determining the fair value of
biological assets as in accordance to IAS 41

15
Sample:

16
 Fair Value Historical Relevance Reliable Conclusion
Problem cost

Conclusion (Cont.)
Since there are a few challenges need to be face in the
application of IAS 41, we recommend:
• Appoint an independent qualified valuer.
• The need for the sponsor to be satisfied that the
independent valuer has appropriate and adequate
experience in valuation
• All parties should be satisfied with the measurement
and disclosure of the biological assets.

17
Thank you

18