Ind AS 41 requires a biological asset — a living animal or plant — to be measured at fair value less costs to sell at initial recognition and at each reporting date, with the resulting gain or loss taken to profit or loss in the period it arises; cost is used only in the narrow case where fair value cannot be reliably measured, which the standard treats as a rebuttable presumption that applies, if at all, only at initial recognition. Agricultural produce harvested from a biological asset is measured at fair value less costs to sell at the point of harvest, and that harvest-date value becomes its deemed cost going forward under Ind AS 2.
Audit procedures on the fair value measurement
- 01Identify the active market, if one existsWhere a quoted market price exists for the asset in its present location and condition — standing timber, dairy herd, poultry — that price is the primary evidence, not a management discounted-cash-flow model.
- 02Where no active market exists, test the present value model used insteadAssess the cash flow projections, the growth assumptions applied for biological transformation, and the discount rate, in the same manner as any other level 3 fair value estimate — walk the model, don't just accept the output.
- 03Confirm costs to sell are limited to incremental, directly attributable costsTransport to market and transaction costs qualify; general overhead and selling and distribution costs that would be incurred regardless of the sale do not, and including them understates the carrying amount.
- 04Test physical existence and quantity through observationA physical count or a reasonable surrogate (herd register reconciled to veterinary and tagging records, standing crop area verified against survey data) is the baseline evidence for quantity before any fair value is applied to it.
Common practice, not a requirement
Where the rebuttable presumption that fair value can be reliably measured is overcome and cost is used instead, auditors should expect this to be rare in practice and should specifically challenge management's basis for concluding fair value is not reliably measurable, since it is the exception the standard anticipates will seldom apply.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Inventory & stockInventory valuation audit: FIFO, weighted average and cost testingTesting the cost formula actually applied against the one disclosed, NRV testing, and overhead absorption into manufacturing cost.
- Inventory & stockPhysical stock count: audit observation procedurePlanning the count date and cut-off instructions, test counts and sampling, covering multiple locations at once, and reconciling count to book quantities.
- Inventory & stockAuditing standard costing variances in manufacturingMaterial, labour and overhead variance analysis under standard costing, and what each variance tells an auditor about inventory valuation risk.
- Inventory & stockWork-in-progress valuation in a manufacturing auditStage-of-completion estimation challenges, testing the bill of materials and standard cost build-up, and the physical verification difficulty of WIP.
Free tools, no signup
Each one reads a file entirely in your browser — or, for two of them, just answers a few questions — and nothing is ever uploaded.
- Purchase register checkDuplicate payments, round-sum amounts, weekend-dated invoices, incomplete records.
- GSTR-2B reconcilerMatches your purchase register against GSTR-2B — missing invoices either side, amount mismatches.
- Bank reconciliation checkerMatches your cash book against a bank statement — what's outstanding on each side.
- Fixed asset register checkDuplicate asset codes, missing location or useful life, negative net book value.
- Payroll red-flag scannerBank accounts shared across employees, and records missing an ID, PAN or salary.
- CARO applicability checkerAnswer a few questions about the company and see which CARO 2020 clauses likely apply.
- MSME payment delay checkerMSME-flagged invoices paid — or still unpaid — beyond the 45-day Section 22 limit.
- Related-party transaction screenerTransactions above a threshold you set with no approval reference, grouped by counterparty.
- Depreciation useful life checkerCompares a useful life in use against the Schedule II, Part C indicative figure.
- Materiality calculatorOverall and performance materiality against PBT, revenue, assets or equity, with reasoning shown.
- Sample size calculatorStatistical sample size for a test of controls or a substantive test of detail.