#13 acCOUNTING for SHEEP (Part 2)

The financial statements for any SME will contain a profit & loss statement, a balance sheet and accompanying notes that provide additional information on the P&L and balance sheet.

However, the financial statements for a livestock business will contain one other (very important) statement – a livestock trading statement.

So what is a livestock trading statement?

A livestock trading statement is a record of the movement(s) in livestock through a particular accounting period and can be recorded in both raw numbers and dollar value. Each livestock trading statement will most likely contain the following metrics:

• Opening Stock
• Natural Increase 
• Purchases 
• Sales
• Killed for Rations (or Goods for Own Use) 
• Deaths 
• Closing Stock

An example of a livestock trading statement is set out below:

The above statement displays the movement in the livestock numbers throughout the year (Section A) and the associated movements in the value of the livestock (Section B).

How can a livestock statement be forensically reviewed?

As always, the devil is in the detail. When forensically analysing livestock statements, it’s critical to understand what you are looking for and where to look! 

For example, take the above livestock statement:

Issue 1 – Purchases

With cattle prices at record highs right across the country, reaching prices as high as $6 per kg, it would be highly unlikely that any cattle would be acquired for $228 per head. More than likely, this is a transaction not at arms-length and would require further investigation. 

Issue 2 – Natural Increase

An existing herd of 18 cattle and assuming at two-thirds half of the herd are breeding stock, a livestock farmer achieving a calving rate of 50% (6 calves from 12 breeding cows) would be at the lower end of the expected range for a successful farmer. This could indicate inaccurate reporting of the natural increase resulting in an understatement of livestock numbers. 

Issue 3 – Sales 

As with the purchases, it would be highly unlikely that any cattle would be sold for $750 per head in today’s market. More than likely, this is transaction is could be:

• not at arms-length; or 
• a result of selling immature stock to devalue the overall livestock value.  

Either way, these sales would require further investigation. 

The identification of the issue(s) above demonstrates why it is critical for any matter involving livestock (or agriculture more generally) should be undertaken by a forensic accounting with significant experience and knowledge of the industry and its nuances.  

For more information on the services we provide to lawyers involved in agricultural matters, please contact me or your local Grant Thornton Australia forensic accounting expert.

If you would like to read Part 1 on 'acCOUNTING for SHEEP', please click here.