- The Edge Financial Daily quoted KPMG as saying that two
accounting rules which would have an effect on Malaysian companies have been
scrapped.
- One of the accounting standards, which would have forced
Malaysian plantation companies to value living things such as oil palm trees,
will no longer be implemented. The accounting standard was supposed to be
implemented from 2014F onwards.
- This is positive for the plantation companies.
- Implementing the accounting standard would have increased
the accounting cost and be a hassle for the plantation companies as they would
have to hire independent consultants to value the oil palm estates.
- The accounting standard would have also increased the
volatility of earnings in the profit and loss statement as fair value changes
in respect of biological assets would fluctuate according to the prices of
commodities.
- Plantation companies listed in Singapore follow this
accounting standard.
- Every year, the plantation companies would look at the
valuation of their oil palm estates and record the fair value changes
accordingly.
- The companies use discounted cash flow to value the oil
palm estates and some of the main assumptions used in the DCF method are CPO
prices, discount rate and FFB yield.
- During periods of high CPO prices, fair value changes in
biological assets would increase. When CPO prices are in the doldrums, fair
value changes in biological assets would fall.
- The fair value change in biological assets is a non-cash
flow item. It does not reflect the core profit of the plantation companies.
- Last year, Muddy Waters LLC said that Olam International
was “aggressive” in reporting gains on biological assets. Subsequently, Carson
Block of Muddy Waters betted against the stock.
Source: AmeSecurities
No comments:
Post a Comment