Forest Assets in Accounting

Research project P 13884 Forest Assets in Accounting Hans A. JÖBSTL 28.06.1999 The determination of economic success (profit) of business organisations, is based on a comparison of assets and liabilities at the beginning and the end of an accounting period (balance sheet). In forest enterprises, the value of the growing stock (=forest assets) is not reflected in this comparison. Consequently, the profit reported by financial accounting is determined leaving changes in forest assets representing the major part of the assets of a forest enterprise (up to 90% and more) out of account. Also internal cost accounting is only able to marginally correct this insufficiency by recalculating its results on the basis of the allowable cut. Key ratios on economic success are incorrect and even misleading. The topic "Forest Assets in Accounting" gains in importance not least due to the efforts of the EU to harmonize accounting systems, to the endeavours for an amended representation of forestry in the national accounts and to the increasing orientation of (former) state forest enterprises towards the private sector. This project aims to develop a practicable model for consideration of changes in forest assets in forestry accounting. Since solutions within the scope of financial accounting are considered as little promising, a calculatory approach is strived for. The groundwork of the project applicant - an analysis approach consisting of three parts already applied in several private forest enterprises -should now be introduced into an overall approach. The most important methods found in (forestry) literature or realised in forest enterprises are to be assessed systematically. The results then can be used for possible improvements of the existing approach. Furthermore a check list for surveying value relevant site and stand data as well as a forest stand data base is intended to be worked out. Following the conceptual development, the model shall be pepared for an computer aided application by means of simple programming as well as tested in a case study. Usefulness in following points can be expected: determination of more realistic success figures, raising of forest assets awareness, improvement of the report of the forest manager to the forest owner as well as the surveillance of value sustainability of the forest.

The projects objectives are the analysis and critical assessment of methods for consideration of changes in forest assets in accounting on the one hand and the development of an EDP-based model for the valuation of changes in forest assets on the basis of the multi-part approach of the project leader on the other hand. The critical evaluation of the forest asset accounting methods by means of a catalogue of criteria specifically developed for this purpose reveals that none of the methods alone is able to give an appropriate view on forest asset changes, which can only be achieved by a combination of methods. Furthermore strengths and weaknesses of the methods analysed as well as proposals to adapt the existing approach of the project leader have been deduced. This outcome has been used to develop an EDP-based model for the evaluation of changes in forest assets, comprising the following parts: - Extension of the traditional allowable cut based performance calculation by evaluating the deviations of the actual from allowable cut regarding size and structure (tree species, quality, logging site, etc.). Two approaches, one on the basis of the planned cut (mid-term and short-term forest management plan) and one on the basis of the allowable cut determined by formulae (sustainable cut) have been worked out. Additionally the deviations of the actual from the planned silvicultural measures are evaluated. - Updating of forest inventory on the basis of the forest stand database in combination with forest asset valuation. Main elements of this calculated inventory are the annual automated updating of value relevant structural stand data depending on the stand age and the manual updating according to actual silvicultural and harvesting measures. - Forest asset valuation by deriving different value approaches such as a cutting value, a linear cutting value, an increment value and an age factor value. The value of the forest stands determined by inventory updating is to be adjusted to the valuation performed on the basis of real forest inventories. - Long term simulation: simulation of long term development of forest stands in order to assess the company net present value and the long-term effects of the allowable cut. The centre of the model is a forest stand database oriented towards valuation and controlling. The database contents are determined by a checklist for the survey of cost and revenue influencing stand and site data. Linking the database with forest stand models for spruce, larch and beech, harvesting cost calculation programmes for two harvesting and logging methods and assortment yield calculation programmes integrating rotting after bark peeling, enables the derivation of stand structure data, harvesting costs and revenues. The model is a pragmatic approach within in the frame of an overall solution of the project leader. It has to be seen as a proxy solution, the results in any case require a further interpretation. The simple adoption of one single result undoubtedly involves the risk of misinterpretation.