Question

when is income recognized in FFSC vs GAPP? what difference does this make?

Answer 1

The main difference between US agricultural reporting and IAS 41 is reporting the fair value for agricultural assets and products as inventory. US GAAP allows the option to disclose their property, plant and equipment assets, biological assets included, at fair value. However, once elected, the entity may not revert to historical cost values. Historical costs are widely used because of the difficulty of determining a fair value of biological assets, as many do not have a liquid market, or may be valued lower than the historical cost. Neither US GAAP or Non-GAAP guidance allows appreciation valuation for agricultural products. This contrasts to IAS 41 that requires the use of fair value reporting for purchased as well as produced biological assets. The use of fair value reporting has invoked a mixed response from the users of agricultural financial statements.

In 1997, the Farm Financial Standards Council (FFSC) released a non-GAAP Financial Guidelines for Agricultural Producers (FGAP). Although the FASB did not participate in creating the guidelines, the FASB did allow the use of detailed citations within the FGAP to explicitly illustrate where the FGAP deviated from GAAP. The FGAP is a set of guidelines on how to present farm information fairly when preparing information for the use of agricultural lenders and investors. There are seven significant differences between GAAP and FGAP including the following.

1. FGAP allows market valuation of assets.

2. Full absorption cost for valuation of raised breeding livestock.

3. Net realizable valuation of inventory (other than raised breeding livestock).

4. FGAP allows combined financial statements with personal items.

5. Modified cash-basis used for the income statements.

6. Recommends a alternate calculation for deferred taxes.

7. FGAP recognized two formats for the income statement including a value of farm products rather than a cost of goods sold section