The Valuation of Forest before and after the Financial Crisis in 2008: A descriptive study of forest valuation under IAS 41

Abstract

Following the financial crisis in 2008, many studies suggested that the use of fair value measurement contributed to the crisis. Further they showed how the value relevance of level 3 inputs especially was affected by the increased doubt in fair value measurement. The crisis also involved large reductions in interest rates. Consequently, the application of IAS 41 - Agriculture in the forestry industry could be affected by the recent crisis. This connection is based on the fact that IAS 41 requires fair valuation of biological assets, that most of the forestry firms use level 3 inputs in their valuation and that the volatility in interest rates are affecting the valuations made by forestry firms through the discount rate which is used to value their forest by the use of a discounted cash flow model. Accordingly, the present study, applying a qualitative approach, investigates the valuation of forests before and after the financial crisis to capture the developments and changes in the used valuation methods. The study covers a period of 10 years between 2005 and 2014 to track changes over a period of time. Annual reports are our focus area for data collection and they are used in order to investigate factors that affect the valuation of forest in firms. The main finding of this study is that most of the companies do not make any significant changes in the valuation methods after the crisis. However, we found that some companies strive for more reliability in their valuation of forests after the crisis compared to before. Finally, some suggestions for follow-up research are presented at the end of this study.