Transcript FFSC UPDATE

What is…the
Farm Financial Standards Council (FFSC)?
Farm Financial Standards Council
The Council [FFSC] came about because of the Farm Debt
Crisis of 1983 to 1987….In January 1989 a “Farm Financial
Standards Task Force” was created with the mandate to
develop and publish standardized Financial Guidelines for
Agricultural Producers.
In 1996 the FFSC was urged to develop a uniform chart of
accounts. This ultimately led, with funding and support
from commodity groups, to the development and publishing
in 2006 of the Management Accounting Guidelines for
Agricultural Producers.
Farm Financial Standards Council
The Council today is a non-profit organization consisting of
professionals representing agricultural producer groups,
banking, the Farm Credit System, accounting, insurance
companies, financial advisors, agribusiness companies,
academics and universities, private finance companies,
cooperative extension, and other experts involved with
agricultural production and finance.
FFSC - Mission Statement
To provide a national forum for developing standards and
implementation guidelines for preparers and users of
agricultural financial information that will promote
uniformity and integrity in financial analysis and
reporting for agricultural producers.
Today’s business environment in agriculture is becoming
increasingly complex. Producers need to process large
amounts of information from a variety of sources in order to
operate efficiently and effectively. The accounting systems
that farmers and ranchers employ must generate
information for reporting to:
Creditors
Government Agencies
Ownership and Management
The Farm Financial Standards Council today offers two sets of
Guidelines to aid producers in 1) capturing this information, 2)
preparing reports and 3) performing financial analysis in a
uniform manner:
Financial Guidelines for Agricultural Producers
Management Accounting Guidelines for Agricultural Producers
These are not static, but are subject to ongoing updating and
review in the context of continual monitoring of financial issues
that are relevant to agriculture:
Financial Guidelines
for Agricultural Producers
• Reporting and analysis at entity level
• Heavy emphasis on external parties
• Financial position and performance
Financial Guidelines
for Agricultural Producers
The Financial Guidelines for Agricultural Producers are intended to:
1. Promote uniformity in financial reporting for agricultural producers by
presenting methods for financial reporting which are theoretically correct
and technically sound;
2. Present standardized definitions and methods for calculating financial
measures which may be used in the measurement of financial position and
financial performance of agricultural producers; and
3. Identify alternatives for development of a national agricultural financial
database.
Financial Guidelines
for Agricultural Producers
The recommendations of the FFSC have been published in a Report containing
three substantive sections:
•
Universal Financial Reports. This section contains suggested procedures and
concepts for constructing farm financial statements for the purposes of financial
reporting and financial analysis (i.e., the balance sheet, the income statement, the
statement of cash flows, and the statement of owner equity).
•
Universal Financial Criteria and Measures. This section contains material regarding
definitions, computations, interpretations, and limitations of some of the most widely
used measures of financial position and financial performance.
•
Universal Information Management. This section contains suggestions for collecting
and using standardized farm financial data for the benefit of agricultural producers
and those that serve them.
Management Accounting Guidelines
for Agricultural Producers
• Reporting and analysis by business components
• Heavy emphasis on management purposes
• Closely linked to business strategy
The Need for the Managerial
Accounting Guidelines
• Because the concepts and process addressed by the
project are critically important for commercial producers
– Ultimately for benchmarking and continuous improvement
applications
– Initially to create more robustness in internal accounting systems
and understanding of cost
• Implementation and training activities continue in the
private sector
• There is a strong need for a forum to achieve whatever
consensus may be possible – to at least provide a
baseline, independent source of information for
producers as well as suppliers
Managerial Accounting Guidelines
114 page document
6 Core Concepts:
1. Requirement for accrual, cost-based accounting records
2. Responsibility center approach for information
accumulation and reporting will be used
3. Integration of production factors/measurements
4. Accumulated core transactional information
supplemented with economic concepts and analysis
5. Guided by consistency with Generally Accepted
Accounting Principals (GAAP), commercial industry
practice, multi-commodity applicability, and
standardization capabilities.
6. Accommodation of multiple period production cycles.
Managerial Accounting Guidelines
Eight Sections:
1.
2.
3.
4.
5.
6.
7.
8.
The need for understanding costs
Basics of managerial accounting
Management accounting levels of reporting
Management accounting issues for agriculture
Chart of accounts
A process for setting up your system
Glossary and definitions
Appendix A
This is not your father’s
record system
Information Sources –
What do we have? What should we have?
Political developments
Weather trends
Status of economy
Weather forecast
Market trend
Production
reports
Economic costs
Consumer
attitudes
Tax revenue
and expense
Crop scouting
reports
Environmental
assessments
Planning
???
Cost studies
Tax policy
& position
Questions We Ask Constantly…
• Which strategies keeping us
successful?
• What strategies should we
change?
• How will strategic change
impact performance?
• What information is needed to
make good decisions and
survive?
Characteristics of a Good Decision
• Optimizes financial results – least cost, most profitable
• Improves or sustains profitability
• Financially feasible – Cashflows, services debt, and
supports family living
• Contributes to long-term financial soundness –
proactive…not reactive
• Promotes quality of life and teamwork
Quality of Life
Mission
Vision
Strategic Plan
Business
Structure
“How we do it”
Long Range
Objectives
Short-term Goals
Succession
Planning
Financing
Genetics
Marketing
Operating Plan- “What We Do”
ValueAdded
Production Capital Plan
Strategic
Alliances
Evaluate
Technology
Adoption
WF Version-Mike Boehlje
Strategic Thinking Model
KRAs
Budget
Action Plans
Crop
Rotation
Diversification
Environmental
Stewardship
Tillage
System
Growth
Why farmers are paid big bucks!
Key Question for the Farm
Manager:
“How can managerial accounting
be used to measure the impact of
Strategic Decisions?”
5 Steps to Strategic Management
• Step #1 – Analyze costs and activity in each
management activity center
• Step #2 – Identify strategies that influence performance
• Step #3 – Simulate impact of alternative strategic
decisions
• Step #4 – Implement high impact strategic options
• Step #5 – Measure the impact of decisions made
Strategic Options – Revenue
Enhancement
• Adopt technology to improve yields
• Marketing options to maximize price
– Value-added
– GMO’s
– Organics
• Off-farm supplementation
• Custom services to utilize underemployed assets, fixed
overhead
• Lobby for more government support!
Strategic Options - Cost Structure
Management
• Strategic Alliances/Joint
Ventures-inputs,
equipment access
• Precision Farming
• Direct Seeding/NoTill
• Optimizing buy,lease,
custom hire decisions
• GMO crops-Bt corn, RR
• Feed enhancementsrBST, Ralgro
• Pre-pricing key input
costs: interest rates,
chemical/fertilizer, fuel
• Optimizing in-sourced
vs. out-sourced
services (spraying,
fertilizing, seed
procurement,
accounting/CFO)
• Growth/OH Cost
dilution
How Do We Implement
Managerial Reporting?
• Learn core concepts of managerial accounting
• Standardize definitions and methodology
• Work through case study applications
• “Test drive” concepts in your business
Implementation Issues
• Sorting out Accounting
and Economic Analyses
• Identifying manageable
segments
• Profit/Cost center report
formats
• Handling unusual
transactions – cost
recovery, revenue adjmt
• Integrating financial and
physical quantities ($, bu,
acres, employees)
• Definitions: Direct vs
indirect; variable vs. fixed
• Transfer pricing
• Alternatives for allocating
indirect costs/overhead
• Other technical issues
– Inventory valuations
– Equipment gains/losses
– Tax vs. Book
Depreciation
• Case Studies – Sample
Farms
Major Differences
Enterprising vs. MA
• Enterprising built foundation for MA
• OK for investors, bankers & 1-horse management
team…not Responsibility Center Managers
– Investors & bankers concerned about “bottom line”
– Managers concerned about responsibility areas
• Goals, decision-roles, strategies, resources
• Performance results, cost management
MA not “new revelation”…why such
little adoption in AG?
• Past margins allowed SLOP…didn’t force focus on
costs…decline in farm margins will FORCE more
attention on MA
• CASH ACCOUNTING convenient, but set industry
backwards for looking at accrual performance and
management performance
• Whole entity analysis has dominated attention of lenders
and educators
Can You Answer?
• What is cost/unit to produce each commodity?
• How have costs changed in last 5 years?
• To what extent is operation relying on government
payments to maintain profit?
• What are key strategies that will be re-evaluated in next
1-5 years?
Obstacles to MA Adoption
• Procrastination – know show do it
• Too used to shoebox approach; doing it for tax
purposes only
• Limited software capacity to implement
• Challenge of getting everybody on the farm “on
board” with disciplines in record keeping required to
make it work
• Doing timely entries of overhead transactions (i.e.
depreciation expense) to give full accounting picture
• Perception that MA is “too complicated”… so never
start
• Production focus…do accounting because HAVE
TO…not because they like doing it
• Historical focus on cash (tax) accounting vs. need for
accrual foundation
Summary: MA = New Frontier in
Farm Management
• Complex, but teachable
• Adopters will have “competitive edge”
• Requires producers to “brush up” on basic financial
management skills, first
• Will require major professional support + CFO skills to
implement
• “New product opportunity” for professional services
industry
• Will require endorsement, encouragement and funding
from stakeholders interested in farm viability
You are welcome to learn, join, and
contribute…How to find us:
Farm Financial Standards Council
N78W14573 Appleton Ave., #287
Menomonee Falls, WI 53051
(262) 253-6902
[email protected]
www.ffsc.org