Examining The Value Relevance of Biological Assets and Their Fair Value Change in Malaysia

Abstract

The Malaysian Financial Reporting Standard 141 (MFRS 141) on agriculture requires all agriculture companies to measure their biological assets based on fair value less cost to sell. Some researchers argue that fair values of biological assets are not reliable and relevant whereas the others suggest that they are value relevant. The purpose of this study is to investigate the value relevance of biological assets and the change in the fair value of biological assets in Malaysia, as measured in accordance with the MFRS 141. Specifically, this investigation looked into whether or not biological assets and changes in fair value over time are relevant to market value. In particular, the study concentrated on assessing whether biological assets and changes in their fair values have a substantial influence on the market value. The sample for this study is made of agriculturally-related companies that had their shares listed on a public stock exchange in Malaysia between 2018 and 2020. The research project was carried out in Malaysia. The investigation was conducted in a manner that adhered to the value relevance technique that Ohlson (1995) recommended. It was revealed that the biological asset and the change in fair value that was established by using MFRS 141 are both major factors that play a role in the process of determining market value. The results lead the researchers to the conclusion that the adoption of MFRS 141 -Agricultural resulted in an improvement in the quality of financial reporting of biological assets in Malaysia. Future studies should include sample from ASEAN, Asia or developed countries so that the results can be generalised.

The impact of biological asset disclosures and economic sustainability on firm value: Evidence from agricultural companies in Indonesia

“…In the present research, BIO and FIV are calculated in the same year. It is in line with previous research IOP Publishing doi:10.1088/1755-1315/1297/1/012069 7 [8], [16], [19], [22]. In Alfarisyi et al [15], the BIO from the previous year matches the FIV this year.…”

“…A study in the Spanish context found that there is no evidence of higher volatility or material variations in earnings or revenues [14] or the calculation of future cash flow [18] between farmers valuing their biological assets at fair value and those valuing them at historical cost. On the contrary, a study in European Union countries by Bispo and Lopes [16], in 27 countries by Goncalves et al [8], in Malaysia by Kadri et al [19], in Brazilian companies by Silva Filho et al [17], and in Taipei [20] confirms similar results that measuring biological assets at fair value enhances firm value.…”