Research On Forestland And Forest Biological Assets Accounting In China

Based on Asymmetric Information theory, Agency theory and other related accounting theories, systematical study on recognition, measurement and reporting of two major assets in forestry enterprises, forest land and forestry biological assets, are conducted using normative analysis and survey. Suggestions are also provided for the forestry enterprises, especially forestry listed companies, to direct their practicing in the field of accounting issues on forestry resource assets. The conclusion reached is as follows:Firstly, newly released Corporate Accounting Principle only focuses on accounting issues on forest biological assets and addresses few about forestland and biological characteristics of forestry assets. It fails to make full-disclosure of financial performance and future feasibility of forestry enterprises. In order to optimize and standardize current accounting system, regulations on forestland and forestry biological assets accounting need to be made and taken as the third level of national accounting standards mechanism.Secondly, in accordance with the idea of"Decision Usefulness", the evaluation of forest assets should exclude that of forestland assets, which is currently prevailing in forestry accounting. Meanwhile, forestland and forestry biological assets should be separately book-kept,presented and disclosed, thus fill up the deficiency of lack of accounting information on forestland assets, and false disclosure on forestry biological assets, which could mislead stakeholders to understand enterprises'financial position, financial performance and future cash flows.Thirdly, recognition of forestland assets should follow Effective Control approach, namely Financial Component approach, that is recognition of the assets is based on transfer of asset control. Even though forestland are legally owned by the states in China, accounting defines it as asset and should categorize it into fixed asset and intangible asset, posting parallel journal entries to the general and subsidiary ledgers;To correct inaccurate traditional cost measuring model, measurement of forestland assets should be in forms of cost measuring model plus physical measurement; information disclosure should involve publication of historical cost plus forest area in balance sheet, other related financial statements and notes; Moreover, regulations on forest assets recognition, measurement, presentation and disclosure need to be supplemented to Corporate Accounting Principles. Finally, according to recognition principle, forestry biological assets refer to forest, living animals and plants, and classifies into three groups: consumptive biological assets, productive biological assets, and public welfare biological assets. Based on this classification, cost calculation sheet should be designed in terms of forest types and production units. Standards for production cost capitalization need to be revised; measurement of forestland assets should be in forms of cost measuring model plus physical measurement; information disclosure should involve publication of historical cost plus volume in balance sheet, other related financial statements and notes. Reliability and relevance of the accounting information are then improved to lower the level of asymmetric information and reduce agency cost.