Palm oil producer Anglo-Eastern Plantations has restated a second set of accounts, following a review conducted by the Financial Reporting Council’s (FRC’s) conduct committee which queried its approach to accounting for biological assets in a review of its 2010 annual report and accounts.

The review looked at Anglo-Eastern Plantations’s use of historical rather than current data to estimate the fair value of palm oil trees, recognised in the balance sheet as biological assets. In its 2010 accounts the company valued its plantation estates using a discounted cash flow technique by estimating future sales proceeds of palm oil, deducting from this the estimated cash costs of production and discounting these estimated net cash flows.

The company used historical percentages to allocate the plantation estate values between land, palm oil trees and equipment. However, an allocation on this basis does not achieve fair value for the biological asset, as required by IAS 41 ‘Agriculture’.
 

In its 2012 accounts, whilst the Financial Reporting Review Panel (FRRP) enquiries into the 2010 accounts were on-going, Anglo-Eastern Plantations changed its valuation method to value land and biological assets separately and recorded its first prior year restatement.  Land was valued by reference to market prices.  The fair value of palm oil trees was valued using a similar discounted cash flow technique to the plantation estate method. 

However, the estimated cash costs of production used historical, rather than current data, to estimate the cost of using the land on which the palm oil trees are planted. As a consequence, the fair value of biological assets was over-stated.

 
Following further discussion with the FRRP, the company has used current market data to estimate the cost for the use of land in its discounted cash flow. As a result, the company has announced a second prior period restatement, which has reduced the value of its biological assets at December 2012 by $37m (£22m) from $245m (£146m) to $208m (£124m). Profit after tax for the year ended 31 December 2012 was reduced by $1.6m (£1m). There was no impact on cash.

The FRC has stated that its enquiries arising from its review of Anglo-Eastern Plantations’s accounts for the year ended 31 December 2010 are now closed.