Value-Relevance of Biological Assets under IFRS

This paper examines the value relevance of fair value accounting for biological assets under IAS 41 Agriculture, using 389 firm-year observations from 2011 to 2013 of listed firms in 27 countries. We adjust the Ohlson (1995) model to operationalize value relevance as the ability of book value to explain market equity value. The results confirm that recognized biological assets are value relevant at fair value, but are more value relevant in firms with higher levels of disclosure. The same results were obtained for bearer biological assets. However, for consumable biological assets, the results suggest that investors do not value recognized biological assets in firms with higher levels of disclosure. These findings should help regulators, accounting standard setters, and readers of financial statements to better understand the market valuation implications of IAS 41.