The value relevance of reported biological assets at fair value in the salmon farming industry

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.