Over recent years Margules Groome has valued more than USD 10 billion of timberland globally. This includes timberland of different types, owned by a broad range of owners and owner types.
“We receive valuation requests from clients, and it is interesting to observe how these requests differ in their reference to applicable financial reporting and valuation standards”, says Rudolf van Rensburg, a Director of Margules Groome. “Specifically, in relation to IFRS 13 and IAS 41, we sometimes see that clients do not reference the former standard in their requests for appraisal work. Yet others request separate “management” value reporting as distinct from financial reporting in reference to IAS 41. Also, of concern, is that we often see no reference being made for compliance with local forest valuation standards; examples include the New Zealand Institute of Forest Valuation standards or the Australian Standard for Valuing Commercial Forests. Ignoring applicable local standards may inadvertently compromise quality.
The IAS 41 financial reporting standard was issued in December 2000 with effect from January 2003 as a basis for accounting treatment and disclosures related to agricultural activity. IFRS 13 followed in 2011 as a joint project between IFRS and the US FASB. It defines “fair value” and how it is to be measured. Given that IAS 41 was developed as a broad agricultural financial reporting standard, its interpretation and application need to be carefully considered in the context of IFRS 13 fair value reporting. IAS 41 excludes cash flows associated with a tree crop post harvesting whereas IFRS 13 fair value requires the reporting of an exit price, i.e. the sales value of an asset. It is Margules Groome’s observation that in most timberland transactions, buyers do not base their bid price on the liquidation of the existing crop, but consider an ongoing business over more than one rotation.