Olam: Accounting for Biological Assets
(6 pages of text)
Case (Pub Mat)
In 2012, an equity research firm based in California accused Singapore-based Olam International Limited (Olam) of engaging in potentially misleading and dangerous accounting practices. The firm — Muddy Waters Research — further stated that Olam was on the verge of bankruptcy. The primary complaint made against Olam by Muddy Waters was that Olam allegedly made aggressive use of “non-cash accounting gains,” particularly when reporting on Olam’s biological assets. Olam’s share price tumbled after the accusations were made public. Olam defended itself by asserting that it had applied Singapore Financial Reporting Standard (FRS) 41 — Agriculture appropriately and that the fair value gains of the biological assets were justifiably derived. FRS 41, equivalent to International Financial Accounting Standards 41 — Agriculture, required Singapore-listed companies to use fair value in the measurement of biological assets. This case examines the complex challenges that valuators face when presented with different valuation models, the application of financial reporting standards and the fine balance between reliability and relevance in the accounting of assets in the real world.
This case was written to introduce students to the use of fair value accounting, particularly in the context of biological assets in FRS/IAS 41 and the application of IAS 113 in the use of fair value measurement of biological assets. Specifically, this case will help students to:
Gain a better understanding of FRS 41 and FRS 113 by analyzing and discovering the challenges behind the use of appropriate recognition, measurement and disclosure principles in biological assets.
Discuss and appreciate the accounting characteristics of relevance versus reliability.
Appreciate the auditing issues related to fair value accounting for biological assets.
Apply the lessons learned in decision making in using accounting standards and understand their impact on investment decisions or evaluations.
Agriculture, Forestry, Fishing and Hunting
Singapore, Large, 2012
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