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9th International Conference on Sustainable Agriculture and Environment IOP Publishing
IOP Conf. Series: Earth and Environmental Science 1114 (2022) 012074 doi:10.1088/1755-1315/1114/1/012074

Factors influencing biological asset disclosures in agricultural

companies in Indonesia

S R Ika1, R Susetyo1, A Pribadi1, T Dwiwinarno2 and A K Widagdo3*

1
Department of Accounting, Janabadra University, Jl Tentara Rakyat Mataram 55-57
Yogyakarta, 55231, Indonesia
2
Department of Management, Janabadra University, Jl. Jl Tentara Rakyat Mataram
55-57 Yogyakarta, 55231, Indonesia
3
Department of Accounting, Sebelas Maret University, Jl Ir Sutami 36 A Solo, 57771,
Indonesia

Corresponding author: widagdo1998@staff.uns.ac.id

Abstract. This study examines to what extent biological asset reporting is corresponding to the
Indonesian Statement of Financial Accounting Standard 69 (PSAK 69) among Indonesia Stock
Exchange-listed agricultural firms. In their annual report, such companies should report how
they recognize and measure the fair value of the living plants or animals' assets. This study also
examines factors that might impact the extent of disclosure of biological assets. The examined
factors are biological asset intensity, concentrated ownership, audit committee effectiveness,
profitability, and size. Biological asset disclosures were measured by a checklist derived from
PSAK 69 and International Accounting Standard (IAS) 41 on Agriculture. This study uses 53
firm-year observations of the listed agriculture companies from 2017 to 2020. Multiple
regression analysis findings indicate that biological asset intensity and firm size affect favorably
the amount of biological asset disclosures. The results indicate that the greater the living plants
or animals owned by a company and the larger the firm, the greater the commitment of a
company to disclose its biological assets in its annual report. The study sheds light on the capital
market authority agency's current policy to strengthen factors that may impact agricultural
companies' disclosure of their biological assets.

1. Introduction
Indonesia is commonly considered an agricultural country due to the large proportion of its people
working in the agriculture industry. Given Indonesia's history as a farming nation, it stands to reason
that its ability to grow its food, fibre, and other goods would significantly impact the country's quality
of life. The agricultural sector's natural resources are collectively denoted to as biological assets. In
reference to International Accounting Standard (IAS) 41 [1], biological assets are living plants or
animals. Meanwhile, agricultural companies are those whose activities relate to managing the biological
transformation of living plants or animals (biological assets) into a product that is ready for consumption
or still requires further processing [2].
In recent years, agriculturally-focused publicly traded corporations have grown in prominence. The
Indonesia Stock Exchange (IDX) were home to 21 agriculturally focused enterprises. Biological assets
were crucial to these businesses since they are used at every agricultural production stage. In light of the
significance of regulations that explicitly govern the disclosure of biological assets, the Financial

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9th International Conference on Sustainable Agriculture and Environment IOP Publishing
IOP Conf. Series: Earth and Environmental Science 1114 (2022) 012074 doi:10.1088/1755-1315/1114/1/012074

Accounting Standards Board of the Indonesian Institute of Accountants made the decision to embrace
IAS 41 Agriculture. On December 16, 2015, the Indonesian Statement of Financial Accounting Standard
69 (PSAK 69) on agriculture was authorized after having been released as an Exposure Draft (ED) in
the mid-2015. Starting on the beginning of 2018, the PSAK on agriculture is fully implemented to the
financial statements of agricultural businesses. PSAK-69 concerns with the accounting practices of
agricultural businesses and covers topics such as: reporting of biological assets, presentation, disclosure
and measurement [3].
The present study attempts to determine the extent to which agricultural firms listed on IDX disclose
their biological assets under PSAK 69. In their annual report, these firms should describe how they
identify and estimate the fair value of the assets of living plants and animals. In addition, this study
scrutinizes the factors that may impact the degree of biological asset reporting in the annual report of a
corporation.
Research related to the factors that may influence the extent of biological asset disclosure has been
done in some countries. In Brazil, Monico et al. [4] document that type of auditor, i.e. big four, improves
the compliance of disclosure under the standard, while in Malaysia, Selahudin et al. [5] reveal that the
level of the disclosures was also greatly influenced by the type of auditor, biological asset intensity, and
firm size. Using 270 cross-country firms as a sample, Goncalves and Lopes [6] investigated determinant
factors of biological asset disclosure, which were classified into two broad categories, namely firm-level
contributing factors and country-level contributing factors. The firm-level contributing factors include
the agricultural sector, profitability, type of auditor, foreign sales, dual listing, ownership concentration,
firm size, and biological asset intensity. Meanwhile, according to the study, the country-level
determinants contain only one variable, namely legal status, which was measured by two different
proxies, i.e. whether a country includes a common law country or a code law country and Leuz’s [7]
country cluster. In Indonesia, some researches have examined factors that affect the extent of biological
disclosures. The examined variables are, among others, similar to those in the firm-level determinants
category of Goncalves and Lopes’s [6] work, for example profitability, size, and biological asset
intensity [8–12]. The majority of the finding of these studies corroborate that biological asset intensity
and size positively impact on the level of the disclosures.
As discussed above, a review of the extant literature suggests that corporate governance
characteristics, specifically audit committees, have not been examined as the variable that may influence
the extent of biological asset disclosures. In its capacity as a board committee, the audit committee has
the oversight role for monitoring the accuracy and completeness of the company's financial information
[13]. Some studies also highlight the significance of the audit committee in enhancing the disclosure
quality of financial reporting, for instance, corporate social responsibility disclosures [19],
environmental reporting [35], and carbon emission disclosures [36]. Due to the fact that the audit
committee has not been explored as the determinant of biological asset reporting— based on the author's
best understanding, the present research attempts to address this gap.
The first objective of the study, assessing the amount of biological asset disclosure, will be discussed
in the parts that follow, along with the research methodology and findings. Meanwhile, to achieve the
second objective of the study, i.e. to investigate whether biological asset intensity, ownership
concentration, audit committee effectiveness, profitability, and size affect biological asset disclosures,
this study will discuss the development of hypotheses of the relationship between each variable with
biological asset disclosures in the following paragraph.
According to the signal theory that was first introduced by Spence [14], management attempts to
send a good signal by disclosing pertinent information that investors may utilize to arrive at judgements
and decisions based on their interpretation of the supplied data. Disclosure of a firm's high biological
asset intensity attempts to signal investors that the company is a good place to put their money.
Companies are more likely to disclose the information if they believe it increases investor confidence
and encourages capital investment. Stakeholder theory[15], which argues that businesses shouldn't just
look out for themselves but also benefit their customers and the community at large, agrees with this
view. Therefore, to gain the trust of stakeholders, the corporate will disclose relevant facts, including

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9th International Conference on Sustainable Agriculture and Environment IOP Publishing
IOP Conf. Series: Earth and Environmental Science 1114 (2022) 012074 doi:10.1088/1755-1315/1114/1/012074

data on the proportion of biological assets as well as the measurement and recognition of the asset under
the accounting standard in annual report of a corporation. Previous studies confirm that the higher the
proportion of biological assets, the wider the level of biological asset disclosures [5,6,8,10–12,16]. The
above elaboration leads to the hypothesis that biological asset has a favorable association with the
amount of biological asset disclosures.
Structures of ownership can affect a company's reporting incentives [17]. Since agency issues
develop when ownership and control are divided [18], it stands to reason that agency costs would
increase with a more decentralized ownership structure [19]. More widespread ownership increases the
likelihood that a company will offer accurate financial statements. to cut agency expenses [20]. In
addition to providing consistency in reporting, IAS are established to ensure transparency in disclosure,
narrow the information gap between management and third-party users, and improve the quality of
information to shareholders [21]. When a company has several investors, there may be a correlation
between the number of investors, the level of public disclosure pressure placed on the company, and the
level of incentive for compliance [22]. From what has been said thus far, the relation's predicted sign
should be negative. However, Goncalves and Lopes [16] found that concentrated ownership positively
affects biological asset reporting. Thus the present study states the following hypothesis. Ownership has
an inverse association with the amount of biological asset disclosures.
Audit committees' contributions to better corporate governance have been extensively demonstrated
in previous research [23]. Financial reporting quality, internal control, and external auditing are all areas
where the committee has supervisory responsibilities as a board committee. According to agency theory,
a well-functioning audit committee should be able to raise standards for all aspects of financial reporting,
including transparency and the extent of disclosures [24]. Previous works have confirmed that audit
committee effectiveness significantly improves disclosure quality, for example corporate social
responsibility disclosures [24], environmental reporting [25], carbon emission disclosures [26]. Hence
this study predicts that the effectiveness of audit committee has a favorable association with the amount
of biological asset disclosures.
Profitability is a crucial metric for evaluating business health. According to Ghazali [27], firms that
provide more details in their annual report indicate a good signal. If the ratio improves, so does the
company's performance. Companies with higher performance will be able to enhance their annual report
quality by including more information about their biological asset. Nikmah et al. [12] investigate the
effect of profitability on biological asset reporting. However, the study finds an insignificant relationship
between profitability and disclosures. This study expects a positive relationship between profitability
and biological asset reporting. Thus this study envisages the hypothesis that profitability has a favorable
association with the amount of biological asset disclosures.
According to several studies [17,28], the size of a company is a significant factor in whether or not
it strictly adheres to reporting rules/standards. Compared to smaller businesses, bigger corporations
allocate more resources to accounting departments, resulting in a greater quality of financial reporting
[17]. Companies with a higher asset level can also afford the price of more transparency [28].
Additionally, companies with a larger market capitalization and higher agency costs are expected to
provide more information to their stakeholders, including financial analysts [18]. Prior studies reveal
that company size has a positive influence to the amount of biological asset disclosures [5,6,10,11,16].
Hence, this research supports the hypothesis that company size has a favorable association with the
amount of biological asset disclosures.
The following is the outline for this paper. The second part of this paper is devoted to discussing the
existing literature and generating hypotheses. Then research method is elaborated in the third section.
In the fourth part of this study, the results are presented and discussed. In the final part, we draw some
final findings and outline possible avenues for future study.

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9th International Conference on Sustainable Agriculture and Environment IOP Publishing
IOP Conf. Series: Earth and Environmental Science 1114 (2022) 012074 doi:10.1088/1755-1315/1114/1/012074

2. Method

2.1. Sampling and availability of data

This research uses agricultural companies listed on IDX from 2017 to 2020 as the sample. The number
was 21 companies. The study data were taken from the firm's annual report, which is available on the
IDX or corporate websites. Through the published annual reports, information on biological asset
disclosures, the value of biological assets, share ownership, and financial performance was gathered.
We found seven companies whose annual reports were unavailable, resulting in 14 companies during
the four years of observations. Among 56 firm years of observation, three samples were eliminated
because of outlier data. Thus, the ultimate sample size was 53.

2.2. Variable measurement

Biological asset disclosures (BAD) are the dependent variable of this research. We calculate the extent
of biological asset reporting by an index of disclosures. The index was derived from the IAS 41 on
Agriculture, as stated in Goncalves and Lopes [16] and Kartikasari et al. [9]. The total number of
disclosure items is 40. This present study used an unweighted method to evaluate biological asset
disclosures. Therefore, it considers only the existence of disclosure-related statements and not the
quality of the given material. The scoring procedure is as described below. Each item on the list is worth
one point if it has been publicly disclosed, and zero points otherwise. The number of disclosed items
was then divided by the highest possible biological asset disclosure index score.
The independent variables of this research are biological asset intensity (BAI), concentrated
ownership (OCON), and audit committee effectiveness (EFAC). Meanwhile, the control variables are
profitability (ROA) and firm size (SIZE). BAI measures the amount of a corporate's investments in
biological assets. Therefore, the proxy for biological asset intensity is the value of the biological asset
divided by the total asset. Concentrated share ownership occurs when a small number of people or
organizations own the majority of the company's stock, giving these shareholders a disproportionate
amount of control over the company's stock. In Indonesia, a person or organization holding 5 per cent
shares or more is called a substantial shareholder [24,25]. The proxy for OCON in this research is the
total number of the share proportion retained by substantial shareholders.
EFAC measures the performance of an organization's audit committee. It was assessed by an index
created by Ika and Ghazali [13]. The index's four components—composition, authority, resources, and
diligence—are broken into ten criteria. See Ika et al. [25] for details on how to score an index. Except
for the audit committee's duty, the ratings were based only on the existence of standards with the score
of either 1 or 0. An audit committee comment of any length receives a score of 1. For every additional
point by which a specific duty is made clear, a score of 2 is granted. Zero points are awarded if the
company's annual report contains no information related to the particular task. When all indicators are
added together, the highest possible score is 14, indicating how effective the audit committee is. The
measurement of all variables examined in the research is portrayed in Table 1.

2.3. Data Analysis

To investigate whether BAI, OCON, and EFAC affect the extent of BAD, the present study employs a
multivariate regression test. The classical assumption test was also assessed as a prerequisite for the
regression analysis. Following is the equation for the regression model.

BAD = α + β1BAI + β2OCON + β3EFAC + β4ROA + β5SIZE + e (1)

The explanation of how to measure every variable is displayed in Table 1.

4
9th International Conference on Sustainable Agriculture and Environment IOP Publishing
IOP Conf. Series: Earth and Environmental Science 1114 (2022) 012074 doi:10.1088/1755-1315/1114/1/012074

Table 1. The identification of variables

Variables Definition Measurement Source

BAD Biological asset The biological asset disclosure index is Goncalves and
disclosures based on PSAK 69 and IAS 41. The Lopes [16].
number of biological disclosure items is Kartikasari et
divided by the highest score achievable on al. [9]
the index.
BAI Biological assets The value of biological capital is divided Yurniwati et al.
intensity by the total asset. [10]
OCON Ownership The total quantity of stock held by major Goncalves and
concentration stockholders. i.e. stockholders owning 5% Lopes [16].
or above
ACEF Audit committee The effectiveness indicator of the audit Ika et al. [25]
effectiveness committee refers to Ika and Mohd. Ika and Mohd
Ghazali [13]. The overall points for the Ghazali [13]
audit committee's performance item of
disclosures in the annual report is divided
by the index's highest possible score.
SIZE Firm size The natural logarithm of total asset. Goncalves and
Lopes [16]
ROA Return on asset Net income to the total asset. Nikmah et al.
[12]

3. Results and discussion

3.1. Descriptive statistic

The descriptive statistics for all variables included in the study are presented in Table 2.

Table 2. Descriptive statistic

Mean Minimum Maximum Standard Deviation
BAD 0.80 0.675 0.90 0.065
BAI 0.38 0.037 0.66 0.181
OCON 0.75 0.39 0.92 0.13
EFAC 0.64 0.36 0.86 0.12
ROA 0.02 -0.52 0.49 0.12
SIZE 10.2 8.78 22.41 4.27
N 53 53 53 53

As depicted in the table, the mean score of BAD is 0.80, indicating the extent of biological asset
disclosures of agricultural companies in IDX is about 80 per cent. The mean value is slightly higher than
those in Nikmah et al. [12] study which counts about 78.45 per cent. The lowest level of BAD is 67.5
per cent, presented by PT Provident Agro Tbk in 2018, while PT Eagle High Plantations Tbk presented
the highest level of reporting in 2017. Both companies are in the oil palm plantations business.

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9th International Conference on Sustainable Agriculture and Environment IOP Publishing
IOP Conf. Series: Earth and Environmental Science 1114 (2022) 012074 doi:10.1088/1755-1315/1114/1/012074

The lowest and highest score of BAI is 3.7 per cent and 66 per cent, respectively, with the average
value being 38 per cent. The number suggests that the proportion of living plants and animal assets to
the total assets of agricultural listed companies is 38 per cent on average. The highest BAI was achieved
by PT Dharma Satya Nusantara, a plywood manufacturer, in 2018, while PT Smart Tbk achieved the
lowest BAI in 2018.
Share concentrated ownership varies from 39 to 92 per cent, with the average of OCON at 75 per
cent. The number reveals that agriculture-listed corporations in Indonesia are highly concentrated in
terms of share ownership. The majority of shares continue to be controlled by the founding family [29],
with few shares being public. The highest OCON is 92 per cent held by PT Smart Tbk in 2018 and 2019,
while the lowest OCON is 39 Percent held by PT Gozco Plantations Tbk in 2018.Table 2 displays that
the score of audit committee effectiveness is 64 per cent on average, with the lowest and the highest
scores of 36 per cent and 86, respectively. The maximum score of EFAC was achieved by PT Sawit
Sumbermas Sarana Tbk, while PT Provident Agro Tbk achieved the minimum score. Both happened in
2019 and 2020.
The profitability of agriculture companies is about 2 per cent, with the minimum value of ROA being
about -0.52 per cent. The number suggests that a company experienced a loss during the observation
period, namely PT Jaya Agra Wattie Tbk, in 2018. Meanwhile, PT Gozco Plantations Tbk achieved
maximum profitability in 2019, with a ROA score of about 49 per cent. Table 2 suggests that the
company size score is 10.2 on average, with the minimum and maximum scores being 8.78 and 22.41,
respectively. PT Salim Ivomas Pratama Tbk in 2019 had the greatest total asset, while PT Provident
Agro Tbk in 2019 had the lowest assets.

3.2. Hypotheses testing.

As stated in the research method section, this study conducts a multivariate regression test to test whether
independent variables affect the extent of biological asset reposting. The outputs of the test are
performed in Table 3.

Table 3. Multivariate regression result.

B t Sig Tolerance VIF

Constant 0.219 1.273 0.213
BAI 0.287 6.111 0.000*** 0.806 1.240
OCON 0.036 0.493 0.626 0.632 1.582
ACEF 0.000 -0.004 0.997 0.513 1.949
ROA 0.170 1.325 0.195 0.833 1.201
SIZE 0.027 2.378 0.024** 0.601 1.049

F Value 7.923
F sig 0.001***
Adjusted R2 0.497
Durbin Watson 2.340
Kolmogrov 0.200
Smirnov Sig
Variance inflation factor (VIF) and Tolerance is for assessing multicollinearity; Durbin
Watson is to assess autocorrelation; Kolmogorov smirnov sig is to evaluate the normality;
F sig is to evaluate the regression model is fit
*** symbolizes significant at 1 percent; ** symbolizes significant at 5 percent.

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9th International Conference on Sustainable Agriculture and Environment IOP Publishing
IOP Conf. Series: Earth and Environmental Science 1114 (2022) 012074 doi:10.1088/1755-1315/1114/1/012074

According to the table, BAI positively influences the level of biological asset reporting, significance
at 0.01 level. BAI reflects the investment of a firm in biological capital. In contrast, the disclosure of
biological assets delivers a summary of what firms have revealed about biological assets based on PSAK
69 in the company's annual reports. The result suggests that companies with a high proportion of
biological assets will demonstrate a better level of disclosure of biological assets. In other words, the
higher the value of a company's biological assets, the more information is revealed to readers of the
company's financial accounts. The result is consistent with previous studies, which found a positive
association between BAI and BAD both in Indonesia [10],[12], [11], and in other countries [16], [6],
[5]. The findings of this research support two competing theories: the signal theory, which states that
directors attempt to deliver useful information to investors so that investors be able to take actions based
on the given information, and the stakeholder theory, which states that the management will disclose
sufficient information about the biological assets owned by the company in order to achieve support
from the stakeholders.
Table 3 shows that OCON does not influence biological asset reporting. The result indicates that no
matter how many shares are owned by the substantial shareholders; it will not impact the level of
biological asset reporting disclosed in the corporation's yearly report. The result is contradictory to those
in Portugal, which found that concentrated ownership has a positive impact on BAD [6]. The plausible
explanation is that most of the sample is already highly concentrated in share ownership. Therefore, the
different levels of concentration will not impact the disclosure.
Contrary to our expectations, EFAC does not impact biological asset reporting. The result is
contradictory to previous studies, which found that audit committee effectiveness significantly improve
the accuracy of financial reporting in terms of corporate social responsibility disclosures [24],
environmental reporting [25], and timeliness of reporting [13].
The result table shows that SIZE influences the scope of biological asset reporting favorably,
significance at 0.05. The result indicates that the bigger the corporation, the higher the management
tends to disclose biological asset information in the company's yearly report due to demand from the
stakeholder. The result supports previous findings that state company size increases the level of BAD
[16], [6], [10], [11]. Meanwhile, profitability has no impact on BAD in agriculture companies listed on
IDX.
Based on Table 3, there is no problem for the classical assumption test as indicated by the
Kolmogorov Smirnov sig value above 0.05; the value of Tolerance and VIF, as well as Durbin Watson,
is by the threshold. The number of adjusted R2, as presented in the table, is 0.497, indicating BAI,
OCON, EFAC, ROA, and SIZE may estimate about 50 per cent of the possible determinant factors of
BAD.

4. Conclusion and suggestion

This study intends to explore the level of biological asset disclosures among agricultural listed
companies and to test the determinant factors of such disclosures. The content analysis of biological
asset reporting suggests that the level of the reporting is relatively high, i.e. 80 per cent on average.
Meanwhile, results of multiple regression indicate that biological asset intensity and company size
improve the level of biological asset disclosures in the corporation's yearly report. The findings may
provide supplementary understanding to the investors and capital market regulatory agency that the
bigger the proportion of biological assets in an organization and the larger the total assets of an
organization, the greater the incentives of the management to comply with accounting standards related
to agriculture.
The limitation of this research that the future study may handle is the ignorance of the effective date
of implementation of biological asset disclosures in 2018. Therefore, future research may investigate
whether there is any difference in the level of biological asset disclosures before and after the effective
date of the formal, regulated implementation.

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9th International Conference on Sustainable Agriculture and Environment IOP Publishing
IOP Conf. Series: Earth and Environmental Science 1114 (2022) 012074 doi:10.1088/1755-1315/1114/1/012074

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