Historical cost vs fair value in forest accounting: the case of Lithuania

Abstract

The accounting methods based on two concepts -accounting at historical cost and accounting at fair value -are responsible for the provision of information about the enterprise's assets in the financial statements. Taking into consideration the specifics of the national financial accounting regulation, the forests managed by the forestry enterprises can also be measured by using either of these two accounting methods. However, in terms of accounting, both of them pose certain problems or ambiguity. The purpose of the research is to evaluate the strengths and weaknesses of forest accounting methods based on fair value and historical cost and the practice of their use in Lithuanian forestry enterprises. The study examines scholarly literature and deploys the theoretical methods of comparative analysis, critical evaluation, systematisation, generalisation. The empirical research involved document content analysis, questionnaire survey. The article deals with the issues of the use of accounting methods for forestry accounting: traditional cost-based accounting methods do not reflect the biological forest transformation, hinders identifying the forest development costs and the end of their capitalisation, the method of a systematic derecognition. On the other hand, the essential complication of the use of the fair value method is that the forest largely lacks an active market with quoted prices. Thus, its fair value is determined on the basis of rather subjective assumptions by means of diverse valuation methods, resulting in unreliable and unverifiable information. The results of the research carried out into the forestry accounting policy observed in the Lithuania's private forestry enterprises revealed that forest accounting by cost is exclusively carried out by all the enterprises under investigation. Nevertheless, the method itself was interpreted quite differently. The article presents the modified forestry accounting methods by cost, which allow reducing the identified shortcomings.

Technology and Organization of Accounting: Recent Changes

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Fair Value Accounting and Investment Decisions in Nigerian Listed Companies

“…This historical cost accounting weakness encourages the company to measure its assets and liabilities using the fair value accounting method, as fair value accounting can more accurately reflect the company's true financial condition. The use of the fair value technique increases the financial statement's relevance, allowing it to be utilised not only for decisionmaking and cash flow forecasting, but also to depict market changes and their influence on firm performance [4]. Additionally, the use of the fair value technique may improve the openness, accountability, and comparability of financial statements [5].…”

The Usage of Information on Costs Classification for Various Purposes of Enterprises’ Activities

“…Tam reikalinga parengti išlaidų klasifikacijos naudojimo konkretiems tikslams metodiką, kurios taikymas sudarytų įmonėms galimybes efektyviau skaičiuoti savikainą, planuoti, kontroliuoti ir vertinti veiklą, nustatyti kainas, rengti išorės ir vidaus ataskaitas bei pasiekti kitus tikslus. Nors pastaraisiais metais išlaidų teikiamos informacijos panaudojimo galimybių mokslinių tyrimų atlikta nemažai (Grondskis, Šapkauskienė, 2011;Hsu, 2011;Lepadatu, 2012;Dražić ir kt., 2012;Świderska, Raulinajtys-Grzybek, 2013;Snieška ir kt., 2013;Novák, Popesko, 2014;Ferens, 2016;Diefenbach ir kt., 2018;Mohr ir kt., 2018;Petrenko ir kt., 2018;Budrionytė, Gaižauskas, 2018;Narkunienė, Ulbinaitė, 2018;Subačienė ir kt., 2018; Raulinajtys-Grzybek ir kt., 2019 ir kt. ), tačiau nuosekli išlaidų klasifikavimo informacijos fondo naudojimo įvairiems įmonės tikslams metodika nėra parengta.…”