The value relevance of reported biological assets at fair value in the salmon farming industry
Master thesis
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Date
2019Metadata
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- Master of Science [1822]
Abstract
The implementation of IFRS in 2005 and the following adoption of fair value
accounting represents a comprehensive change in the field of accounting in
recent times. This legislation, requiring fair value on reported biological assets
(IAS 41), has led to conflicting opinions regarding the accounting quality
requirements relevance and reliability. For the salmon farming industry, this
meant reporting their biological assets including fair value adjustments. There
is, however, an ongoing debate on whether these fair value estimates are
reliable and relevant enough to be reflected in a company's market value of
equity.
This thesis takes on the value relevance of biological assets in the salmon
farming industry. In the first part of our study, we will present and discuss
relevant accounting theory and empirical results from the value relevance
research and the salmon farming industry. Based on this, we have developed a
set of hypotheses that will be tested in our empirical study. Here, we will test
the value relevance of reported biological assets in the salmon farming
industry. Due to a small amount of existing research on the topic, we believe
our findings will contribute to the area of study. Our sample consist of 214
observations, retrieved from six salmon companies listed on Oslo Stock
Exchange. We have used the Ohlson price model to examine the relation
between the reporting of biological assets and the market value of equity. Both
own accounting estimates at historical cost and reported financials including
fair value adjustments have been used in our analysis.
The study finds the reporting of biological assets to be value relevant at fair
value. Historical cost measures are also to be considered value relevant, even
though there is indication of higher value relevance when including fair value
estimates. Additional tests support our findings but shows that it is no longer
obvious that fair value estimates are value relevant together with other publicly
available information.
Description
Masteroppgave(MSc) in Master of Science in Business, Business law, tax and accounting - Handelshøyskolen BI, 2019