Legality and Reasonableness of Accounting Handling of Payments to Growers
- The main dispute between the parties relates to the question of whether the payments made by Agrexco to the growers constitute a recognizable "asset" in the company's financial statements, or whether they are considered an ongoing expense that must be recorded in the profit and loss statement at the time of its formation. I will preface the beginning by noting that after an in-depth study of the opinions submitted on both sides of the barricade, I have reached the conclusion that the registration of payments to growers as an asset on the company's balance sheet does not meet the requirements of the accounting standards that apply on the relevant dates. I will explain my assertions below.
Preliminary Questions - What are the relevant standards and what is the claimed resource
- In the circumstances of the case, and taking into account the factual basis that is not in dispute, including the absence of written contracts with the growers, the lack of a legal right to enforce against them, and the reliance on the expectation of continued engagement, the appropriate normative framework for examining the issue is the conceptual framework for financial reporting, together with Standard 30 and International Accounting Standard No. 38 regarding intangible assets (hereinafter: "IAS 38"). IFRS 15, on which the parties relied alternatively, constitutes at most a supplementary framework, and is not the starting point for the discussion of the very existence of an identifiable asset.
- I accept the plaintiffs' position, as detailed in Ronen's opinion (in paragraphs 35-46 of the opinion), according to which as of January 1, 2007, Agrexco is obligated to implement Standard 30, by virtue of the accounting scale set out in Statement 26. From the date of its entry into force, this standard constitutes the binding law in Israel with regard to the recognition, measurement and presentation of intangible assets in financial statements. This is also indirectly evident from Gottlieb's interrogation (Transcript, p. 991, questions 11-16):
"Q: Confirm to me that the special payments are not a financial asset as defined by Standard 30.