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The theoretical framework of the study is outlined in this chapter, detailing that the lack of an application guideline for the fair valuing of biological assets consequences incomparable financial results (Burnside, 2005:6; Maina, 2010:174; Ossip, 2011:11; Burykin, et al. 2011:131; Elad and Herbohn, 2011:94; FASB, 2011:1; Van Biljon, et al. 2013:61; Rozentăle and Ore, 2013:57; Gonçalves and Lopes, 2014:2; Baigrie, 2014:75). Decisions derived thereon may be impaired, biased and may influence operations destructively, necessitating the establishment of an application guideline (Burnside, 2005:6; Azevedo, 2007b:9; Chebac and Onica, 2009:32; Pike and Chui, 2012:89; Rozentăle and Ore, 2013:58; Muhammad and Ghani, 2013:23; Antonio and Bassetti, 2014:19; Ălvarez, Grecco, Formigon, & Geron, 2014:4).
Chapter two contextualise the accounting principles and challenges of researched countries that inform the inconsistency of biological asset reporting. The importance of fair value accounting to users of financial information is detailed as it informs the later research conducted in chapter four and the development of the application guideline in chapter five. The market developments impacting on biological asset reporting, like the accounting for bearer plants, environmental reporting and non-financial pressures caused by land claims are also explored.

 Theoretical framework

The development of the application guideline is based on the cognitive research theory. This theory is concerned with the development of a person’s thought process and how it influences our understanding of accounting and the application thereof (Berkeley, 2015:1). The theoretical framework is based on the following perceptions identified in studies on biological assets (own emphasis): Agriculture and social responsibility is important to the users of financial information: “Prudence must be shown in managing living species and natural resources, so that immeasurable riches provided by the nature can be preserved and passed on to the following generations. Business institutions have been long recognised as major exploiters of natural resources causing ecosystems degradation. For that reason, it is fair enough if global companies are required to bear greater responsibility in achieving the goal of sustainable development.” (Sudana, et al. 2014:4)
Agricultural activities are limited to individuals and small organisations:
“Farmers usually prepare account in order to comply with tax framework and subsidies.” (Athanasios, et al. 2010:221)
“In a world context, few are the countries that have specific accounting standardization on agriculture, even as this activity was always associated with small or medium size farms, with the only objective to get family income.” (Azevedo, 2007b:2)
Accounting for biological assets has not received much attention and is considered a fairly new concept:
“IAS 41 has been applied for more than 7 years in several countries and will be adopted in countries that now in the process of convergence with IFRS… there are also countries that have not yet adopted IAS 41 in the process of its convergence with IFRS such as India, Malaysia and Indonesia. These are an indication that there is something wrong with IAS 41.” (Aryanto, 2011:3) “Even though agriculture is important to the global economy accounting standard setters have paid little or no attention to accounting for agricultural products. There was no uniform system of financial reporting for agriculture producers in the United States prior to the farm crisis in the 1980s as the industry was focussed on production, marketing or tax reporting rather than decision-making.” (Marsh, et al. 2013:79)
“In the past, accounting for agriculture sector did not receive much attention from accounting researchers, practitioners, and standard setters.” (Clavano, 2014:2) Financial reporting is driven by management and is important to the users of such information:
“We recommend that accountants and finance analysts must play a meaningful role to keep directors and management on their toes.’ (Mgbodille and Onah, 2014:94)
“Transparency in financial reporting has always been considered positive from the standpoint of financial statement users, but not necessarily something for which management has striven.” (Phillips, et al. 2010:11)
“The motivation to contribute is important, in that, it gives employees the opportunity to release their potential and apply their own resources, by taking initiative and acting creatively in order to achieve organisational goals.” (Mitonga-Monga, et al. 2012:5391)
Financial statements are vital in the decision-making process:
“The development of small and medium enterprises in agriculture makes a fundamental change in the formulation of accounting and reporting which is one of the main sources of information allowing their users to make managerial and economic decisions.” (Bayboltaeva, 2015:211)
“Although agriculture is an important part of the world economy, accounting in agriculture still has many shortcomings. The adoption of IAS 41 “Agriculture” has tried to improve this situation and increase the comparability of financial statements of entities in the agricultural sector.” (Feleagá, et al. 2012:415)
A change is needed in how accounting principles are applied:
“need to step up on a higher level, in order to improve the fair value valuation methods and to minimize the negative aspects, regarding management subjectivism and production forecast, and to maximize his strengths.” (Gabriel and Ştefea, 2013:103) “It is necessary to improve accounting and tax regulations in order to be able to adequately measure the increasing efficiency of agricultural resources. Quality of accounting information enables improvement of financial and tax incentives system.” (Vukmirovic, et al. 2012:727)
“Although agriculture is an important part of the world economy, accounting in agriculture still has many shortcomings. The adoption of IAS 41 “Agriculture” has tried to improve this situation and increase the comparability of financial statements of entities in the agricultural sector.” (Feleagá, et al. 2012:415)
From the stated perceptions, the formulated cognitive theory of this study is: Biological assets accounting principles was introduced much later than other accounting principles. This may be as agricultural activities have mainly been performed by smaller organisations or individuals who did not publish their financial statements and prioritised taxation regulation compliance. As such, financial statement users may not have been interested in the performance of these organisations. As it was not necessarily a priority to compare the financial results to those of other organisations or to make operational decisions therefrom, accountants was not expected to compile comparable financial results for the industry. The increased importance of the financial statements to the users thereof now requires accountants and management to amend their thought processes to produce comparable and informative financial statements to the users thereof.

Theory of planned behaviour adapted to financial statement reliance

Figure  illustrates how the attitude of the accountants and the users of financial statements and their knowledge of IAS 41 will guide their valuation methods, impacting on the reliance on the financial results and the decisions derived therefrom. The illustration supports the cognitive theory applied in this research as a change in the thought process of financial statement compilers and the related users may enhance the quality of decisions made from such reports.
The perceptions and the attitudes of the accountants that report on biological assets were further explored to comprehend the valuation methods applied in various countries and the related challenges experienced thereon as the application guideline developed in chapter five is informed by the industry’s challenges and perceptions. The application guideline developed in this study will assist the industry to comprehend the assumptions, valuation methods and the application of the financial principles regulated in IAS 41, as the study reviewed the applied accounting practices as well as the accounting practices that are expected to be followed by the users of the financial reports in terms of the IAS 41 standard.

 The importance of and accounting on agriculture

Agricultural activity is associated with biological asset reporting. To determine whether all fauna and flora are required to be reported in the scope of IAS 41, the following definitions were explored:
Biological asset ‘is a living animal or plant’ (ASB, 2012:7; IASB, 2015:A1347).
Agricultural activity refers to the management of the biological transformation (process of growth, degeneration, production and procreation that results in a change in the biological asset) of a biological asset for sale, distribution or the conversion into an agricultural produce (ASB, 2012:7; IASB, 2015:A1347).
Animals and plants included in the scope of the International Accounting Standard 41 (IAS 41) and the Generally Recognised Accounting Practise 27 (GRAP 27) needs to undergo managed agricultural transformation to be classified as biological assets. Unmanaged biologically transformed animals or plants are not regarded as biological assets (Burnside, 2005:27; ASB, 2012:6). Managed agricultural transformation and the accounting thereof are therefore imperative to this application guideline development.
Agricultural processes not only stand central to the recognition of biological assets, but have a significant impact on the development, growth and financial performance of any organisation and country operating in biological assets or farming activities (Mates and Grosu, 2008:457; Muhammad and Ghani, 2013:16). Prior studies highlight the importance of this economic sector and financial reporting:
 Agriculture is a complex, key sector for the economic development of a country (Azevedo, 2007a:3; Vukmirovic, et al. 2012:723, Cronjé, 2013:8; Demir, 2015:52). The accounting information produced in this sector should enable the users to improve financial and tax decisions to effectively measure the efficiency of the overall performance of the country (Vukmirovic, et al. 2012:727).
 Agricultural activities promote commercial trade and employment in rural areas and therefore improve the quality of living in such areas (Harriss-White,
2008:554; Bohušová, Valouch & Svoboda, 2012:1; Rozentăle and Ore, 2013:57; Malomane, 2013:2,41).
 Agricultural production decreases due to factors like incorrect accounting policies, climate changes, dry seasons, land settlements and an increase in population growth, whereas the importance of scientific agricultural processes and stockbreeding increased (Harriss-White, 2008:549; Duman, et al. 2012:118,119,124; Malomane, 2013:140). Contrary to the agricultural production decrease, the demand for food increased and attention is to be paid to the quality and nutrition of the food produced (Harriss-White, 2008:549; Duman, et al. 2012:118,119,124; Malomane, 2013:140).
 In the Lake Nakivale wetland, Uganda, total land use was transformed from cattle to crop farming (Kamukasa and Bintoora, 2014:58). As the agricultural use of land directly contribute to the feeding of families, the traditional crop farming is evolving in developing countries to fight hunger. The financial activities are not currently documented by these farmers. In recording the agricultural activities in accordance with the requirements of IAS 41, the farming operations can be analysed to assist with the farming operations in other developing countries.
 Organisations need a competitive edge and can never stop improving their operations and the ability to attract investors (Lottering and Dick, 2012:1; Esterhuizen, Schutte & Du Toit, 2012:1; Koopman, 2012:22; Muxaŋƅcƅka; 2015:1). As such, financial reports produced by organisations should allow the users of the financial statements to reliably compare the operations of the organisation to that of other entities (Macedo, 2012:19; Gonçalves and Lopes, 2015:5; Stonciuviene, Zinkevinciene & Martirosianiene, 2015:62). Comparative financial results will also assist management to seek knowledge of how to address challenges and to gain decision enhancing information from other organisations (Lottering and Dick, 2012:8; Esterhuizen, et al. 2012:4; Musarat, Sarwar & Azhar, 2014:2; Gonçalves and Lopes, 2015:5).
 Marchington’s view, as cited by Mitonga-Monga et al., emphasise the importance of compiling financial information that will address the needs of the individual users thereof: ‘People are no longer expected to accept decisions without having some opportunity to influence the final outcome’ (Mitonga-Monga, Coetzee & Cilliers, 2012:5389). Agricultural decisions taken by management should be influenced by investors, producers and any other stakeholders in the management process (Huffman, 2013:22). The comprehensive decision-making process where management, stakeholders and investors can contribute in the assessment of information to derive at a management strategy to control the business emphasise that financial information is important to various influencers and should be consistent and comprehensive to enhance the decision maker’s evaluation.
 The biological asset accounting standard enhancements allows for agricultural activities to be recorded, tax returns to be completed, transactions to be acquired with financial services providers, profits to be managed and decisions to be taken by the users of financial information (Azevedo, 2007a:5; Duman, et al. 2012:119; Muhammad and Ghani, 2013:23).
 Biological assets can be held by an organisation to derive both an economic and a non-economic benefit, where economic benefits will centre on the expected profits to be generated, and the non-economic benefit address the religious or spiritual benefits and the social utilities where public produce generation is aimed at poverty reduction or scientific research (Stonciuviene, et al. 2015:63).
The economical and developmental impact of the agricultural sector can be directly linked to the financial results reported by the relevant organisations and data regarding the feeding of nations. The significance of the accounting principles that regulates the financial treatment of the agricultural processes is emphasised by the growing need for food production and subsequent financial investment required.

1.1 Background information
1.2 Problem statement
1.3 Research objectives
1.4 Thesis statement
1.5 Purpose of the study
1.6 Significance of the study
1.7 Research framework, design and method
1.8 Limitations of the study
1.9 Definitions
1.10 Structure of the study
2.1. Introduction
2.2. Theoretical framework
2.3. The importance of and accounting on agriculture
2.4. Inconsistencies in the accounting treatment and reporting on biological assets
2.5. Fair value accounting principles
2.6. Challenges of fair value accounting
2.7. Accounting and market developments
2.8. Summary and conclusion
3.1 Introduction
3.2 Cognitive theory 0
3.3 Research design
3.4 Research methods
3.5 Data analysis
3.6 Sensitivity of information
3.7 Limitations
3.8 Ethical considerations and clearance from the Research Ethics Committee of the College of Accounting Services
3.9 Summary and conclusion
4.1 Introduction
4.2 Phase one: Purposive sampling
4.3 Phase two: Annual report content analysis
4.4 Phase three: Closed and open-ended questionnaires
4.5 Phase four: Interviews with various user groups
4.6 Summary and conclusion
5.1. Introduction
5.2. Applicability of IAS 41
5.3. Researched accounting policies and valuation guidance per sector
5.4. Users’ expectations on accounting policies
5.5. Valuing biological assets
5.6. Disclosure notes to the financial statements
5.7. Industry examples researched and available IFRS 13 guidance
5.8. Accounting developments
5.9. Verification of the application guideline
5.10. Summary and conclusion
6.1 Introduction
6.2 Summary of the research
6.3 Research conclusion
6.4 Contribution of the study
6.5 Revisiting the established cognitive theory
6.6 Revisiting the research objectives
6.7 Recommendation from results
6.8 Areas identified for further research
An application guideline for the fair value accounting of biological assets

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