2003 the main problem in evaluating these rates on

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the discount rate used is equal to the rate that would have been used in the market (Eckel et al. 2003). The main problem in evaluating these rates on the basis of economic substance is their lagged response to economic factors, and their ‘portfolio’ effect (Gamble and Cramer 1992).The interest rate is calibrated here by comparing the discounted property values, the surrogates, with actual market prices both at the stand and forest holding levels. Recall that the cash flows are discounted at a 6.25 percent interest rate and the calculation is done by the succeeding 70–100 years in the Swedish forest industry companies Holmen, SCA, Svea Skog and PWC Öhrlings (Burnside, 2005, Hellsten and Thorsson 2006). An Australian forestry firm uses an 8% rate (Herbohn et al. 1998). Comparisons between market values of forest holdings and the NPV estimates suggest that four per cent (4%) would be the appropriate interest rate for fair value estimations (Hyytiäinen et al. 2007). Fair value ± The prime legal requirement for financial reporting in the EU is that financial statements must give a ‘true and fair view’ (TFV) of the company’s state of affairs and financial results. The TFV legal requirement has been established through the Fourth Company Law Directive (Directive 78/660/ EEC), and later extended to consolidated accounts through the Seventh Company Law Directive (Directive 83/349/EEC) (Alexander and Jermakowicz 2006, p. 139). Particularly with reference to formal (formats of the balance sheet and the profit and loss account) and disclosure aspects, national accounting systems have become similar in the EU, because of the directives (Thorell and Whittington 1994, p. 219). The particularities of the Member States of the EC were not sufficiently reflected in international accounting standards, which was the main reason why these standards were not applied at all by companies in the Community (van Hulle 1992, p. 169). The requirement to include fair value of the assets in the profit and loss (IAS41.26) is compatible with the Fourth Company Law Directive, because Arts. 42 e and f (Art 12 Modernisation Directive) grant Member States the option to ‘permit or require in respect of all companies or any classes of company the valuation of specified categories of assets other than financial instruments at amount determined by reference to fair value’ and the inclusion of a change in the fair value in the profit and loss account (Wüstemann and Kierzek 2006, p. 99). The TFV was not actually mentioned in the first version of the Fourth Directive in 1971, but the second one in 1974 and the final one in 1978 do include the TFV (Alexander 1993). The main reason for introducing a fair value model is a desire to best reflect biological transformation in the financial statement of enterprises undertaking agricultural activity. However, the “accounting for value change” approach of IAS 41 will of itself do nothing to remove incompatibility between forest values calculated and reported by business entities (Barnes 2004). Moreover, both American and Canadian accountancy organisations advocated historical cost as an appropriate measurement
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  • Spring '17
  • Jane Smith
  • Balance Sheet, The Land, ........., International Financial Reporting Standards, Finnish Forest Research Institute

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