4th Aspects and Visions of Applied Economics and Informatics March 26 - 27.

2009, Debrecen, Hungary

Analysis of the accounting sytsem of the Farm Accountancy Data Network

Ildikó Csajbók
Assistant lecturer at the Department of Finance and Accountancy of Faculty of Agricultural
Economics and Rural Development (University of Debrecen)
Böszörményi str. 138, Debrecen, Hungary

Abstract
The aim of the analysis is to examine and evaluate the accounting system of the Farm
Accountancy Data Network (FADN) and to reveal possible areas of further development and
wider dissemination of information provided by the FADN. The Farm Accountancy Data
Network of the European Union gathers accountancy data from farms for the determination of
financial performance, for business analysis of agricultural holdings, to measure the impact of the
EU’s agricultural policy and to support the on-farm decision making process. FADN applies
specific accounting rules and principles during the evaluation of income of agricultural holdings.
First the EU legislation of the FADN is introduced and afterwards a member state’s efficiently
operating FADN is examined in more details. The accounting methods, specialties of the system
and the contents of the annual report are introduced and analyzed in the article.
Keywords: Accounting system, FADN, management accounting

1. INTRODUCTION
First I intend to introduce the EU legislation of the FADN and afterwards I use one member
state’s efficiently operating FADN as a basis. My goal with this analysis is to find possibilities
for improving the Hungarian system. In the article the Dutch FADN is used as the basis of
comparison, as it can provide many solutions to the practical problems of the Hungarian FADN.
FADN applies specific accounting rules and principles during the evaluation of income of
agricultural holdings. The accounting methods, specialties of the system and the contents of the
annual report are going to be introduced in the article.

2. EU LEGISLATION, GENERAL OVERVIEW

The accounting data collected by the FADN concerns assets, liabilities, revenues and costs and is
summarized in reports similar to balance sheet and income statement. Some additional financial
indicators are also created like specification of farm capital or changes in net worth. The contents
and valuation methods are quite different in the FADN from the ones that are applied in financial
accounting.
The balance sheet in the FADN is similar to the balance sheet applied in financial accounting.
The layout of the balance sheet is shown in Table 1.

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BALANCE SHEET
ASSETS
Fixed assets
Land and permanent crops
Buildings
Machinery
Breeding livestock
Current assets
Non-breeding livestock
Stock agricultural products
Other circulating capital
NET WORTH
LIABILITIES
Long- and medium-term loans
Short-term loans
Table 1 : The layout of the balance sheet in the FADN
Table 2. introduces the income statement in the FADN.
+Total output
+ Subsidies on production and
costs
- Intermediate consumption
a) Specific costs
Seeds and plants
Fertilisers
Crop protection
Other crop specific costs
Feed grazing livestock
Feed pigs and poultry
Other livestock specific costs
b) Overheads
Machinery and building costs
Energy
Contract work
Other direct inputs
- Taxes and VAT balance
= Gross farm income or Gross
value added
- Depreciation
= Farm net value added
+ Investment grants and subsidies

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- External factors
Wages paid
Rent paid
Interest paid
= Family farm income
Table 2.: The layout of the income statement according to EU regulation
The income statement prescribed by EU regulation determines three types of income: gross farm
income, farm net value added, family farm income. Gross farm income is calculated by
subtracting specific costs (seeds, fertilizers, cost of crop protection etc), overheads (machinery,
building costs, energy etc) and taxes from total output plus (non-investment) subsidies. The
following items belong to the category of output:
Ö sales, use and consumption of crop and livestock products and livestock and other output,
Ö change in stocks of crop and livestock products,
Ö change in valuation of livestock,
Ö purchase of livestock with a negative sign.
The ‘other output’ category includes all the items that don’t relate to the former output categories.
Other outputs are for example forestry products, leased land ready for sowing, receipts of
tourism, receipts relating to previous accounting years, production of fixed assets (treated as
capitalized value of own performance using the terminology of financial accounting).
There are four main categories of costs distinguished in the FADN:
Ö Specific costs:
-crop specific costs (seeds, plants, fertilizers, crop protection)
-livestock specific costs (feed)
-specific forestry costs
Ö Overheads
-machinery and building costs
-energy
-contract work
-other direct inputs
(not linked to specific line of production)
Ö Depreciation
Ö External factors
-wages, social security and insurance,
-rent
-interest
Specific costs and overheads that are part of gross farm income are called together ‘intermediate
consumption’ and they are taken into account on accrual basis.
The category of taxes incorporates all types of direct farm taxes, other duties and taxes and other
charges on land and buildings. Indirect taxes e.g. personnel income tax are not part of the annual
report as they have no close relation with agricultural activity.
In general farm net value added relates to the payment of fixed factors of production.
Farm net value added is result from subtracting depreciation from gross farm income.
Family farm income can be calculated by adding investment grants and subsidies to farm net
value added and subtracting external factors such as wages paid, interest paid etc.

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3. RESULTS
The results of the research can be grouped into four categories:
1. Evaluation methods;
2. Historical cost accounting versus current cost accounting;
3. Data collection;
4. Publication of information collected and processed by the FADN.
3.1. Evaluation methods
One main characteristic of the FADN is that actual market value (Current Cost accounting) is
used mainly in the annual reports instead of historical costs, which is the general practice in
financial accounting. However, the actual market value is not always available or it would be
rather expensive to acquire it. Evaluation of accounting data collected by the Hungarian FADN is
based on the regulation of the Hungarian law of accountancy, which is not necessarily compatible
with the EU requirements. The positive aspect of the Hungarian practice is that it intends to
identify actual market value during the evaluation of agricultural assets more and more
extensively, although the applied practical method is limited to the usage of expert knowledge.
As a result, the reliability of these evaluations strongly depends on the skills and experience of
these experts. The article introduces some practical recommendations; methods (based on the
Dutch experience) that can be easily applied during even the first level data collection of the
FADN, and that can meet the EU requirements also at this level of data collection. The article
presents some more reliable valuation methods as well that can also be used extensively. It is
important to note that the usage of the Current Cost methods can result in a better financial and
profitability situation of the Hungarian agricultural holdings.
I would like to recommend different methods to estimate market value if the actual market price
is not available.
x estimating market price from data about related assets (e.g. the market value of a specific
type of tree is calculated by modifying the market value of a familiar type of tree)
x expert knowledge (e.g. in the case of some types of apple trees the LEI expert estimates
the actual value)
x benchmark
x standard formulas (e.g. determining market value of breeding livestock with filling a
general, stable formula with actual data about the animals)
x net present value

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3.2 Historical cost accounting versus current cost accounting

As Historic Cost accounting has significant role in Hungary (e.g. taxation), it would not be
favorable to eliminate or ignore this system. The literature of agricultural accounting
recommends a parallel usage of Historic and Current Cost accounting (KAY and EDWARDS,
1994). A balance sheet with two columns: one column shows the items at Historic Cost, the other
column shows the same items at Current Cost.
It is suggested for the Hungarian FADN to implement this methodology. Accounting could be
based on Historic Cost accounting. In addition to this, liaison agencies should determine the
actual market value of the balance sheet items. Determination of actual market value has already
begun in the Hungarian FADN, however mainly the method of expert knowledge is applied by
the liaison agencies. This means that there is not a generally accepted methodology that can be
used all over in Hungary. AKI (Agricultural Economics Research Institute), head of the
Hungarian liaison agencies that summarize collected data and makes the necessary (statistical and
other) correction of these data. The experts working at AKI have got a common basis for a
countrywide comparison. However, the disadvantage of this system is that these experts at AKI
do not know the local, regional specialties of agricultural holdings in details fully.
3.3. Data collection
The other problem of the Hungarian FADN is the scarcity of available database and accounting
documentation about private agricultural holdings. In order to alleviate this problem, I
recommend the followings:
To build communication channels with official bodies, organizations that have such type of
information, like farmland. In order to determine the market price of real estates, it is
recommended to contact local real estate agencies or registry offices.
There is a high number of agricultural machinery, equipment and cars which change hands only
seldom or never. Therefore it is especially difficult to determine their actual market price. I
recommend working out a valuation system, a policy (based on the practice of the Dutch FADN)
that determines the actual market value of these typical agricultural assets. In the following years
the actual market price could be determined by multiplying the former market price with a
specific price change indicator calculated by AKI. The value of an asset would be determined in
this system according to a function of its age, type, power and other technical parameters. The
establishment of such a system is a complicated and expensive task, but updating this system
based on actual market prices, technology changes etc. can be easily executed. This could ensure
that the Hungarian liaison agencies provide EU conform information about actual market values.
The Market Information System, the Hungarian Central Statistical Office could cooperate with
the FADN in working out such a system.
Cash movements should be registered by accounting documents like bank account statements or
contracts. Precondition of this is the increasing portion of transactions paid via money transfers.
It is important to note that the profitability, equity of Hungarian agricultural holdings could be
more favorable in several areas of accounting using the methodology of the FADN. It is difficult
to predict the net effect of applying this different evaluation method on the assets and profits of
agricultural holdings. Due to the application of Current Cost accounting the value of assets may
increase and at the same time equity / shareholders’ capital may increase as well. With this
different method the overall financial situation of farmers may be better than in the system of

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financial accounting. Financial indicators of farmers could also improve applying these different
evaluation methods.
In the future it would be useful to apply this comparative accounting methodology and compare
the Hungarian FADN with other EU member states (Germany, for example) and find more
possibilities for the development of the Hungarian Network.
3.4. Publication of information collected and processed by the FADN
Reliability of data published by FADN strongly depends on the farmers that provide information
to the network. In the Hungarian FAND test farms are not selected from a random sample
explicitly, furthermore the rotation of the sample is not guaranteed in such a way like in the
Netherlands. This explains that the successful operation of the Hungarian network strongly
depends on the agricultural holdings taking part in the network. In order to ensure the reliable and
accurate information from agricultural holdings it is important to motivate farmers to participate
in the network actively. One possible way of motivation is rewarding farmers with detailed
reports on their own farm and a comparison with other individual farms (bench-marking)
prepared by FADN. The detailed and aggregated financial, natural and accounting data collected
and processed by the Hungarian FADN enable this network to reward Hungarian farmers with
market information and bench-marking data. The network has to put extra emphasis on the
appropriate quality, content of information provided to the farmers and on the timing as well, in
order to ensure that farmers can utilise these data in their own microenvironment. In the article, I
worked out a proposed information brochure that contains natural and financial data, financial
ratios, indicators, managerial accounting reports and bench-marking analysis of the farms
participating in the network. In the future this brochure could be published in a wider and wider
range of agricultural holding.

4. CONCLUSION
The article intended revealing the main characteristics of the FADN, showing an example in
practice and in addition to that the aim of the article was to show some possibilities of improving
the efficiency of this network. In my personal opinion, this system is a very useful tool to provide
information to the actors on the economic stage. Even if it has its own barriers I still think that it
can help not only decision makers on the highest level but information providers and other
farmers as well.

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University, Spain

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