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Agricultural and Resource Economics: International Scientific E-Journal
http://are-journal.com
Vol. 9, No. 3, 2023 197 ISSN 2414-584X
JEL: M41, M42, Q14, Q15
Valerii Zhuk, Mykola Pugachov, Oleksandr Shpykuliak,
Yuliya Bezdushna, Yevheniya Popko
National Scientific Centre “Institute of Agrarian Economics”
Ukraine
APPLICATION OF ACCOUNTING FOR THE ASSESSMENT OF WAR
LOSSES FOR AGRIBUSINESS ENTERPRISES OF UKRAINE
Purpose. The military aggression of the russian federation against Ukraine led to the disruption
of logistics processes and the destruction of the production capacity of the agribusiness. This study
aims to describe an accounting toolkit to determine and evaluate the direct losses of agricultural
enterprises due to the war.
Methodology / approach. This study is based on the use of Ukrainian regulatory documents.
The authors of this study applied synthesis methods when summarizing information on estimates of
war damage. They used analytical methods in monitoring the world and national experience of such
assessment. The cost method was used during the approbation. It provided for the use of the estimate
program “Building technologies: Estimate 8”. Determining the volumes of repair and construction
works was carried out in accordance with the State Construction Standards and Resource Elemental
Estimate Standards of Ukraine. In addition, modelling, analogy and comparison methods were also
used. Results. In this study, the authors proposed a simple algorithm of actions, which allows for
detecting direct damage by enterprises in a short time. The algorithm is based on the use of five
accounting methods: (1) Inventory method, (2) Documentation method, (3) Evaluation method,
(4) Accounts and balance method, (5) Reporting method. The specifics of the application of each
method are described in detail, taking into account the requirements of accounting legislation for the
recognition and assessment, and inventory of assets of agribusiness enterprises. Experimental
calculations (using the example of damage to real estate as a result of hostilities) allowed us to
conclude that the damage calculated by the individual (object-by-object) approach
(USD 63.88 billion) is 30 % higher than the quick estimate of the World Bank (USD 50.4 billion) and
20 % higher than expert estimates made in Ukraine (USD 50.4 billion).
Originality / scientific novelty. According to the research results, a methodical algorithm to
estimate direct war losses for Ukrainian agribusiness enterprises based on accounting methods has
been proposed. Using accounting tools to evaluate the direct losses is essential for the following
reason. Let’s suppose that the accounting system does not confirm the data on direct losses. In this
case, misunderstandings may arise between the participants of socio-economic relations, who
operate with general (forecasted) figures. At the same time, verified accounting data on direct losses
can be evidence in court and are the basis for receiving compensation or financial assistance.
Practical value / implications. The practical significance of the proposed methodical algorithm
lies in the ability to systematically recognize and assess direct losses of agribusiness enterprises,
taking into account the specifics of their assets, based on the accountant's professional judgment,
without the involvement of outside experts.
Key words: accounting methods, accountant’s professional judgment, consequences of war,
inventory, direct losses, damage assessment, agribusiness enterprises.
Agricultural and Resource Economics: International Scientific E-Journal
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Introduction and review of literature. Agribusiness is a successful branch in
the Ukrainian economy. In the entire recent history of Ukraine, it has never had a
negative foreign economic balance of payments. However, the military aggression of
the russian federation against Ukraine led to the disruption of logistics processes and
the destruction of the production capacity of the agribusiness. Russian invaders
deliberately mine fields, steal and undermine agricultural equipment, destroy
agricultural infrastructure, rob grain stocks, and block Ukrainian Black Sea ports. With
continued hostilities, it is difficult to assess the scale of destruction and damage.
Therefore, it is important to fix and document them at this stage to receive international
or state assistance later. In addition, the government calls on agricultural enterprises to
record all the loss of property and the destruction of production infrastructure to form
an evidence base for the crimes of russian troops in Ukraine.
According to the research, on the 181st day of Ukrainian resistance, the war cost
Ukrainian farmers and agribusiness companies USD 23 billion in lost profits,
destroyed equipment, and transportation costs [1]. However, the war continues, and
therefore the direct losses of agribusiness are increasing daily.
Evaluation and fixation of business transactions in the enterprise is a function of
accounting. In wartime, along with the usual operational processes, the accountant
must carefully record the direct damage caused to agricultural enterprises as a result of
the armed aggression of the russian federation. However, a centralized (with the
participation of the Ministry of Finance of Ukraine or the Ministry of Agrarian Policy
and Food of Ukraine) methodological support of such a process has not been developed
yet, which creates certain difficulties and actualizes the scientific search for a solution
to this problem.
Armed conflicts cause enormous damage to the environment. G. Mitri states that
repetitive armed conflicts may be directly and indirectly responsible for severe
biophysical modification to the environment. This makes the land more susceptible to
degradation [2]. The researcher made such conclusions based on assessing the
consequences of military conflicts in Northern Lebanon.
In 2020, the Conflict and Environment Observatory [3] published a report called
“How does war damage the environment?” and summarized the main ways how wars
and militarism damage the environment. Since the outbreak of hostilities in Ukraine,
CEOBS has been actively monitoring the situation and regularly publishing reports on
environmental damage. The report says: “The invasion of Ukraine has once again
highlighted the threat posed by wars to the environment. The environment suffers
before, during and after armed conflicts, as well as in situations of occupation” [3].
Agribusiness is based on the use of natural environment components – agricultural
land, biological assets, and water resources. The damage caused by these components
is direct damage to agricultural enterprises, so it must be recorded as a force majeure
factor affecting economic activity.
Over the years of modern history, Ukraine experienced a second full-scale
military aggression, which caused direct damage to business entities in all industries.
However, after 2014, Ukrainian researchers almost did not study the problems of
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assessing and fixing the economic consequences of hostilities in the Donbas. A few
articles disclose the legal issues of property loss in occupied territories. As for the
economic consequences, only N. Vygovska and A. Polchanov assessed Ukraine’s
losses of financial potential from the military conflict [4]. Before the full-scale war in
scientific research, accounting became a means of measuring processes that are
functionally not characteristic of it, but very important for society: sustainable
development [5], capitalization of national wealth [6], interdisciplinary accounting
research [7], visual accounts [8], competition [9], ensuring economic security [10]. In
2018, in the research of O. Goraі, the theoretical foundations and organizational and
methodological provisions of the accounting of the consequences of hostilities and the
occupation of state territories are substantiated [11].
More and more foreign researchers consider accounting as inseparable from
business information systems [12; 13; 14]. At the same time, research by foreign
scientists shows that accounting is a tool for measuring and assessing losses in various
areas of economic activity. Research by M.-X. Wang et al. [15] is devoted to loss
accounting of environmental pollution within Pearl River Delta region, South China.
The work of Y. Feng et al. [16] is significant because it proposes different methods for
calculating human and non-human damage caused by pollution. A decrease in the value
of the assets of enterprises due to direct damage or destruction, as well as a decrease in
expected benefits due to the deterioration of the external environment in which the
business operates, are the consequences of the russian federation’s armed aggression
in Ukraine. Therefore, the issue of accounting approaches and procedures for assessing
losses from asset impairment becomes relevant [17].
Y. Ishchenko et al. [18] state that managing the Ukrainian agricultural business in
war conditions requires changes in accounting policies and taxation mechanisms. The
researchers substantiated the expediency of liberalizing the requirements for primary
accounting for a special period, which will allow adapting the documentation system
to the specifics of the organization of economic processes under martial law. In their
research, the property of enterprises is singled out as a specific object of accounting,
which became unsuitable for use due to its territorial location in the zone of active
hostilities, in the zone of temporary occupation, or other war-negative factors.
In wartime, there is necessary to introduce a regional policy coordinated with
bodies of the State tax service concerning the application of accelerated depreciation
rates in the territories where active military actions occur. Although the national
accounting standard 7 “Fixed assets”, allows doubling the depreciation rate and
revising the useful life of fixed assets, it does not clarify the depreciation policy of
wartime [19].
Therefore, an actual direction of scientific research is to reveal the possibilities of
a wider application of accounting tools for assessing and accounting for the
consequences of war. In particular, accounting tools should also be used to confirm the
amount of direct losses caused to Ukrainian agribusiness by the war. Since the
manipulation of unconfirmed amounts of direct losses for political or other purposes
can lead to a decrease in trust in the country and other negative consequences described
Agricultural and Resource Economics: International Scientific E-Journal
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in the research of P. Archel et al. [20].
The purpose of the article is to describe an accounting toolkit to determine and
evaluate the direct losses suffered by agricultural enterprises due to the war.
Methodology. On February 2023, the total damage caused to Ukraine’s
infrastructure due to a full-scale russian invasion was USD 147,5 billion (at
replacement cost). In particular, the direct losses caused to the agro-industrial complex
and land resources increased by USD 2.1 billion. Currently, the estimate of losses in
this area reaches USD 8.9 billion [21]. Scientists of the National Scientific Centre
“Institute of Agrarian Economics” have developed a method to document and estimate
the cost of these losses for individual enterprises of the agrarian sector. Therefore, the
objectives of this study are as follows:
1) to offer the enterprise’s accountant methods for:
a) collection of information on every object’s losses and general losses;
b) writing off losses in accounting and tax accounting;
c) fixing losses on state e-resources;
2) to ensure state management with the information on the volume of losses and
an information base for the objective distribution of compensation/support;
3) to ensure the collection of evidence for litigation.
This study is based on the use of the following regulatory documents:
- Decree of the President of Ukraine “Question of the National Council for the
restoration of Ukraine from the consequences of the war” dated April 21, 2022
No. 266/2022;
- Decree of the Cabinet of Ministers of Ukraine “On approval of the procedure for
determining the harm and damage caused to Ukraine as a result of the armed aggression
of the russian federation” dated March 20, 2022 No. 326;
- Regulation on the inventory of assets and liabilities, approved by the Ministry
of Finance of Ukraine dated 02.09.2014 No. 879.
The authors of this study have practical experience in accounting, so they applied
the accountant’s professional judgment to identify opportunities for display direct
damage in the enterprise’s accounting system. In addition, modelling, analogy and
comparison methods were also used.
The procedures and principles of inventory, documentation and also collection,
storage, and distribution of information in a digitalized management environment are
the base for the developed organizational and methodical foundations of accounting
for the direct damage caused to agricultural enterprises due to the armed aggression of
the russian federation.
The results of this study were tested in practice at enterprises that are members of
the Agrarian Union of Ukraine and the Association of Farmers and Private Landowners
of Ukraine.
Results and discussion. The second year of the full-scale war of the russian
federation against Ukraine continues, which has brought enormous damage to a
business, especially to the subjects of the agricultural sector. For an agricultural
enterprise, losses caused by hostilities can be divided into two types:
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a) direct losses – the amount of complete/partial destruction, damage, theft of
property, stocks, work in progress, capital investments and other assets (accounting
objects). To assess such losses, accounting tools are used;
b) indirect losses/lost profit – the amount of damage from the complete/partial
exclusion of the production of ordinary economic activities, including land use and loss
of productivity of biological assets. Analytical and statistical methods are used to
estimate such losses.
In Ukraine, the monetary valuation of enterprise property (and therefore its losses)
is the prerogative of independent appraisers, whose activities are regulated by the Law
of Ukraine “On valuation of property, property rights and professional appraisal
activities in Ukraine,” dated 07.12.2001 No. 2658-III. This law defines the legal basis
for property valuation, property rights, and professional valuation activities in Ukraine,
its state and public regulation, ensuring the creation of a system of independent
property valuation to protect the legitimate interests of the state and other subjects of
legal relations in matters of property valuation, property rights and using its results.
However, the power of independent appraisers is not enough to assess all scales
of losses, both in the agribusiness sphere and in other spheres of the economy. In
addition, the issue of paying for their services will immediately arise, placing an
additional burden on the shoulders of business entities. Therefore, involving the
accounting community in calculating the losses caused to agricultural enterprises by
the war seems appropriate. Arguments in favor of this approach are given in Table 1.
Table 1
The organizational basics for the agricultural enterprises’ damage assessment:
comparison of advantages and disadvantages
Approaches / Potential of
specialists
Valuation
Benefits
Disadvantages
Accounting approach
The number of
accountants is over
500.0 thsd people
- at historical cost;
- at fair value
- mass application;
- short deadlines;
- minimum costs
- personnel training;
- the complexity of
the market assessment
Expert approach
The number of evaluators
is 4.2 thsd people
The number of experts is
0.3 thsd people
- at market value
- professionalism of
personnel;
- market assessment
- at the expense of the
victim;
- limited
opportunities in terms
of time and scope;
- complexity
Source: developed by the authors.
Practice shows that the accounting approach can be applied in shorter terms and,
practically, at every enterprise. In addition, the accountant is the first to determine
losses using the primary inventory method as soon as the territory has been liberated,
and the company independently determines the possibilities of resuming its activities.
This practice (of post-war inventory) is already taking place today at the enterprises of
Lyman in the Donetsk region.
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Assessing losses is more complex than determining the actual availability of
property or other assets. For this, it will be necessary to conduct certain professional
training among accountants. However, according to our calculations, the financial costs
of the professional development of accountants are still lower than the costs of
independent appraisers’ services. So, in wartime conditions, the accounting approach
to accounting for enterprise losses is an alternative that can help solve urgent issues of
restoring the viability of the business and the state’s economy. Today, accountants of
agricultural enterprises need methodical support and clarification on assessment,
accounting, and documentation of direct losses. Therefore, this study is designed to
solve this problem.
Evidence collected and documented by agricultural enterprises will later be used
to recover from the aggressor country under “Russia will pay” project, relevant court
decisions and other equity initiatives. Several state e-resources have already been
launched, designed to record the direct material damage caused: destroyed, stolen and
damaged property. Among them:
- the project “Russia will pay”, developed by KSE jointly with the Office of the
President of Ukraine and the Ministry of Economy of Ukraine;
- a resource for documenting war crimes and crimes against humanity, created by
the Office of the Prosecutor General together with Ukrainian and international partners;
- special chatbot Tribunal.ua;
- e-resource “Support”;
- a joint platform for collecting evidence of war crimes;
- the only national portal for collecting facts about human rights violations.
To establish the facts of loss, theft, damage or destruction of the property of an
agricultural enterprise as a result of hostilities on the territory of Ukraine, an inventory
must be carried out. As in other well-known cases, the rules for appointing an inventory
commission and conducting an inventory are unchanged. However, below will be
disclosed the features of the inventory as a method of accounting, which arise only in
the case of fixation and documentation of direct losses.
First of all, to identify direct losses as a result of the war, an inventory should be
carried out as soon as possible from the moment property damage was caused by the
military actions with video, photographic recording and documentation of the facts
revealed. The inventory commission consists of enterprise employees (engineer,
agronomist, mechanic, accountant and other specialists) with special knowledge to
assess the property’s condition that has suffered destruction or damage. To determine
the amount of damage, witnesses who are not employees can be involved in the
inventory commission of enterprises (for example, employees of the State Emergency
Service, representatives of local authorities, police officers, and fellow villagers).
Witnesses consent to participate in the inventory by indicating personal data and
affixing their signatures to the inventory materials.
In wartime, it may be impossible to issue an order to create a commission or
appoint an authorized person. In this case, an enterprise representative can document
and form evidence based on the facts of causing direct property damage to an
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agricultural enterprise. The representative of the enterprise can be: an initiative
employee of the enterprise; a person residing in the territory where the enterprise is
located; or another person.
In an emergency threatening health, life or property, the head or representative of
an agricultural enterprise must contact the State Emergency Service. After the
completion of the work of the employees of the State Emergency Service, it is
necessary to make a copy of the act confirming the occurrence of an emergency and
damage or destruction of property.
The inventory is carried out following the Regulation on the inventory of assets
and liabilities, approved by the Ministry of Finance of Ukraine dated 02.09.2014
No. 879 (after this, the Regulation No. 879). However, in the case of documentation of
direct losses, the inventory provides for the implementation of video and photographic
fixation of the destroyed or damaged property of an agricultural enterprise.
In the case of registration of the results of the inventory of destroyed, damaged
fixed assets, in addition to the inventory descriptions of non-current assets, it is
recommended to draw up an Act of Inspection of Fixed Assets. The aggressor must
base the manager’s decision regarding the date of the inventory on the certainty
(assumption) of the subsequent non-repetition of direct damage (after the liberation of
the territory, cessation of shelling, etc.). At the same time, photo and video recording,
drawing up acts, certificates or other documents regarding destruction, damage, or loss
of property must be carried out as soon as possible from the moment of damage.
In addition to the described actions, the manager or representative of the
agricultural enterprise should apply to the law enforcement authorities with a statement
about the crime and provide evidence of the property destruction. After that, he should
get an extract from the Unified Register of Pretrial Investigations.
All collected inventory materials are documentary evidence of direct damage to
the agricultural enterprise and are subject to uploading to information bases of state e-
resources. Each e-resource has its algorithm of actions (step-by-step instructions) for
those who upload data on recorded damage facts. If the agricultural enterprise has its
official website or profile on social networks, it can publish the collected evidence.
Also, the enterprise can post links to publications by mass media or government
agencies, where there is photo or video evidence of damage or destruction of its
property. If an agricultural enterprise is obliged or voluntarily prepares and publishes
a Management Report, then information on the facts of direct losses from damage
caused to it must be published in the “Results of activity” section and taken into account
when forming the “Risks” section.
In Ukraine, the mechanism for determining the amount of damages from theft,
shortage, and destruction (damage) of material assets (except for precious metals,
precious stones, and currency values) is regulated by the Procedure for determining the
amount of damages from theft, shortage, destruction (damage) of material assets,
approved by the Cabinet of Ministers of Ukraine dated 22.01.1996 No. 116. However,
in other countries, the amount of damages may be determined by conducting an
independent valuation following international or national valuation standards.
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Now the assessment of losses is a relevant issue not only for individual
enterprises, but also it is an important task for all state and public institutions of
Ukraine. The experience of such an assessment is important for the further
development of scientific and methodological approaches to the assessment of damage
from wars in the world.
The World Bank with the Government of Ukraine and the European Commission
conducted the first official assessment of Ukraine’s losses from the war in August
2022. The internationally recognized methodology Damage and Loss Assessment
(DaLA) [22] was used to assess the damages and needs of Ukraine, which provides a
comprehensive assessment of damages and needs for restoration. The report “Ukraine
Rapid Damage and Needs Assessment – August 2022” was based on data as of June 1,
2022, collected in the period from May 30 to July 30, 2022 [23].
The report calculated the need for recovery for USD 349 billion, in particular for
the restoration of the infrastructure, production and social sector, which is 1.5 times the
GDP of Ukraine in 2021. Taking into account the consequences of the war from
February 24 to June 1, 2022, the direct damage caused to the sectors covered by the
RDNA was estimated at the level of about USD 97 billion [23], and total losses
amounted to USD 252 billion.
In February 2023, the World Bank presented an updated report “Ukraine Rapid
Damage and Needs Assessment: February 2022 – February 2023” – RDNA2, in which
total losses are rapidly approaching USD 300 billion (Table 2). Table 2
Assessment of the damage and needs for restoration: calculations of the World
Bank, the Government of Ukraine, the European Commission
and the United Nations
Indicator
June 1, 2022
February 24, 2023
Damage caused (direct damage), billion USD
97
135
Total losses*, billion USD
252
290
The need to restore the infrastructure, production and
social sector, billion USD
349
411
Note. *This refers to the aggregate amount of losses caused by the disruption of economic flows
and the functioning of production cycles, as well as the additional costs associated with war.
Source: [23; 24].
The rapid assessment was carried out in a short time frame to ensure that the
assessments were up-to-date, and extensive efforts were made to improve the accuracy
of the information that was collected, analyzed and verified as much as possible. Given
the ongoing nature of the conflict and the lack of access in temporarily non-
government-controlled territories, data collection was mostly carried out remotely, but
was verified using factual information. Given these limitations, the authors of the report
cannot guarantee the absolute accuracy of the data included in this work [23; 24].
The DaLA methodology was developed by the United Nations Economic
Commission for Latin America and the Caribbean in 1972. In the future, it was improved
to obtain the most accurate assessment of damage and losses due to disasters. It is a
flexible tool that can be adapted to specific types of disasters and the requirements of
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public ownership. The DaLA methodology bases its estimates on the overall economy
of the affected country. It uses the national accounts and statistics of the country’s
government as input data to estimate damages and losses [22]. The accounting and
financial reporting data are one of the sources of national accounts, so we can say that
the World Bank’s rapid assessment is based on accounting data.
On May 16–17, 2023, at the summit of the Council of Europe, it was announced
the creation of an international register of damages caused by russia to Ukraine since
the beginning of the full-scale invasion. This register was created in accordance with
Resolution CM/Res (2023)3 on the establishment of the Extended Partial Agreement
on the Register of Damages Caused by the Aggression of the russian federation against
Ukraine, adopted by the Committee of Ministers of the Council of Europe on May 12,
2023 [25].
In Ukraine, the procedure and methods of assessing damage and losses from the
war are defined in a number of regulatory documents, and are also raised in scientific
publications and widely discussed in professional circles. Today, there are many
estimates and analysts who reveal different versions of such estimates. In general, these
assessments are similar in their methodology to the “Ukraine Rapid Damage and Needs
Assessment – RDNA2” conducted by the World Bank. A summary of some of them is
given in Table 3. The estimates refer to the period 2022–2023. Although they are not
object-specific, they are still more specific and relate to certain types of damage. Most
of the analysis can be found on the damage caused by the explosion of the Kakhovka
hydroelectric power station of Ukraine.
Some Ukrainian expert assessments coincide, and some significantly differ from
the conclusions of the World Bank (Table 4). This indicates the objective complexity
of such an assessment and the high probability that the real value indicators of damage
are much higher than any estimates made to date.
So, currently, in the expert environment of Ukraine, the data of a quick assessment
are used, which we can call a generalized assessment (global / generalized approach).
That is, all the above calculations are generalized and in the case of a detailed
assessment of damages (object-by-object approach), their amount will be much higher.
We made this conclusion by applying the technique we developed for recording and
assessing direct damage to a specific enterprise that suffered from a fire. The fire
occurred in a restaurant in Odessa in October 2022. The damage from the fire, which
we calculated, is UAH 18.6 million and concerns 692.3 sq. m of premises. During the
assessment, the cost approach was applied, which involved the calculation of the new
replacement value by the method of direct reproduction in modern prices for material
resources. The cost of repair and restoration works is calculated using the estimate
program “Construction Technologies: Estimate 8”, which is recommended by the
Ministry of Development of Communities and Territories of Ukraine and meets the
requirements of regulatory documents in construction. The calculation of the volumes
of repair and construction works was carried out in accordance with the State
Construction Standards and Resource elemental estimate standards for a specific type
of work according to the rules for calculating the volumes of works.
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Special knowledge in the field of construction, economics, and finance is required
to carry out a high-quality object-by-object assessment. To carry out such an
assessment, court experts, appraisers, and estimating engineers are involved. At the
same time, accounting provides the information base for calculations. Table 3
Assessment of damage caused by the war: calculations of individual ministries,
experts in Ukraine
Type of damage
The institution that determined
Estimated amount
of damage,
billion USD
Direct damage was caused to the
infrastructure of Ukraine [21]
Kyiv School of Economics
147.5
Damage caused to the environment and
ecosystems (more than 2,500 documented
damages) [26]
Ministry of Environmental
Protection and Natural Resources
of Ukraine
54.7
Damage caused to the environment due to
the explosion of the dam of the Kakhovka
hydroelectric power station of Ukraine [27]
Ministry of Environmental
Protection and Natural Resources
of Ukraine
4.0
Direct losses (losses of the housing and
communal sector, energy, agriculture,
transport, ecology and industry) due to the
explosion of the Kakhovka hydroelectric
power station of Ukraine [28]
Ministry of Economy of Ukraine
Kyiv School of Economics
2.0
Damage to the energy system of Ukraine
(excluding the Kakhovka hydroelectric
power station of Ukraine) [29]
United Nations Development
Program and the World Bank
10.0
Damages to the fishing industry of Ukraine
as a result of the destruction of the
Kakhovka hydroelectric power station of
Ukraine* [30]
State Agency of Land
Reclamation and Fisheries of
Ukraine
0.3
Damages to State Property of Reclamation
Systems and Channels* [31]
Ministry of Agrarian Policy and
Food of Ukraine
4.1–4.4
Direct and indirect losses of the Ukrainian
agricultural sector from the explosion of the
Kakhovka hydroelectric power station of
Ukraine [32]
Ministry of Agrarian Policy and
Food of Ukraine.
10.0
Note. *Amounts in UAH converted into USD at the official exchange rate as of August 2, 2023
(36.5686).
Source: compiled by the authors.
The total area of damaged or destroyed real estate in Ukraine as of June 2023 is
87 million sq. m [33]. So, if we extrapolate our calculation to the entire volume of
damaged objects, the amount of damage will be USD 63.88 billion (Table 5).
We add one important caveat to such calculations. We prepared the damage
estimate for a partially damaged building; therefore, the specified amount is only an
approximate minimum for the total volume of losses in Ukraine. However, this rather
conditional result is 20 % higher than the existing expert estimates [21; 33] and almost
30 % more than the calculations of the World Bank [24]. In our opinion, the evaluation
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results prove the importance of specifying and applying an individual approach.
Compensation for losses caused to the enterprise is carried out taking into account
the actual costs of the enterprise for the restoration of damaged or new material assets
and the cost of their restoration. In Ukraine, during the period of martial law and state
of emergency, if the enterprise does not have the opportunity to contact independent
appraisers, it can independently calculate the amount of damages. When determining
the size of direct losses from damage, or destruction of fixed assets, one should proceed
from the probable financing for the restoration of a specific object, taking into account
the current market prices on the date of determining the losses. Table 4
Total damage, losses and needs by sector: a comparison of national and global
estimates, billion USD
Indicator
World Bank
Report [24]
(February 2023)
Kyiv School of
Economics [21]
(April 2023)
Direct damage caused to the infrastructure of Ukraine,
including:
134.7
147.5
Residential buildings (the number of damaged objects
of the housing stock exceeds 163 thsd. The total area of
damaged or destroyed objects is 87 million sq. m, or
8.6 % [33])
50.4
54.4
Infrastructure
-
36.2
Enterprise assets
-
11.4
Education (3.2 thsd educational institutions)
4.4
9.1
Agriculture and land resources
8.7
8.9
Energy
10.6
8.3
Forest
-
4.5
Vehicles
35.7
3.1
Trade
10.91
2.6
Culture, tourism, sports
2.6
2.2
Health care
2.5
2.7
Utilities
4.62
2.7
Digital infrastructure
1.6
0.6
Administrative buildings
-
0.5
Social sphere
0.23
0.2
Financial sector
0.0
0.04
Other damages
2.44
-
Notes. 1Including industry. 2Includes water supply and drainage (2.2) and municipal services
(2.4). 3In the social protection sector, household income losses are estimated at USD 61.5 billion,
which were not included to avoid double counting for other sectors. 4Irrigation and management of
water resources, environmental protection (0.4); nature management and forestry (1.5); response to
emergency situations and civil protection (0.2); justice and public administration (0.3).
Source: compiled by the authors.
When determining the size of direct losses from the destruction (damage) of
stocks, the market price for the relevant assets on the date of determining the losses
should be used. Let’s suppose stocks are suitable for use, but their quality
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characteristics have deteriorated. In that case, they are reflected in accounting and
reporting at the lower of two estimates: original cost or net realizable value. According
to paragraph 25 of the National Accounting Standard No. 9 “Inventories”, inventories
are recorded at net realizable value if their price has decreased or deteriorated, become
obsolete, or otherwise lost their originally expected economic benefit. For example,
such a situation is possible when the grain is clogged. Table 5
Calculation of probable direct damage caused to real estate objects
as a result of hostilities
Indicator
Value
1. Approbation of the developed methodology
1.1. The area of the affected real estate object
692.30
1.2. The estimated amount of damage from the fire, UAH
18 589 341.20
1.3. The amount of damage per 1 sq. m area, UAH
26 851.57
2. Extrapolation of the result to the total area of damaged real estate
2.1. The total area of real estate damaged or destroyed by the war in Ukraine
(July 2023), million sq. m [33]
87.00
2.2. The total amount of damage from damaged or destroyed objects, billion
USD (2.2 = 1.3 x 2.1 x official USD exchange rate as of June 1, 2023)
63.88
Source: authors’ research.
In accounting, the write-off of destroyed fixed assets is reflected as follows: the
debit of the account “Depreciation of fixed assets” and credit of the account “Fixed
assets” (for accumulated depreciation); the debit of the account “Writing off non-
current assets” and the credit of the account “Fixed assets” (for the residual value). The
write-off of destroyed stocks is reflected in accounting as follows: the debit of the
account “Deficits and losses from damage” and credit of the account “Inventory”.
After recording the information about the damage caused to the state e-resources
(publication of the information), the enterprise reflects the debt for the damage caused
by the debit of the account “Calculations for the compensation of the damage caused”
and the credit of the account “Income of future periods”. After receiving compensation
for losses, the enterprise will have to recognize income by debiting the “Deferred
income” account and crediting the “Reimbursement of previously written off assets”
account (current assets) or the “Other income” account (non-current assets). Until the
courts establish the fault of the russian federation, the sums of losses charged to the
enterprise’s expenses are shown simultaneously on the off-balance sheet sub-account
“Unreimbursed shortages and losses from damage of valuables”.
Thus, the results of this study prove that accounting methods provide a full
assessment and documentation of direct losses of agribusiness as evidence of the
crimes of the russian occupiers on the territory of Ukraine. The scheme of application
of methods and tools available to accountants for determining direct losses is presented
in Figure 1. Our proposed developments have been widely discussed in scientific
circles and have caused a number of discussions. Representatives of the evaluator
community advocate the expert basis of the evaluation methodology. Scientists and the
professional public are proposing easier-to-use methods that would be based on an
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accounting methodological basis.
Figure 1. Accounting tools for determining direct losses due to war
Source: developed by the authors.
As we can see, today, various international and Ukrainian analysts and
government representatives indicate different amounts of direct losses caused to
Ukrainian enterprises, including agricultural companies. These amounts are quite
different. Of course, in wartime, it is difficult to estimate these losses because the
The direct loss
survey report
prepared by the
Commission
Inventory list
Actual condition /
Accounting
Inventory report,
Protocol of the
inventory
commission
Excess / Lack
(1) Inventory method
Registration
of the case
- calculations
- acts, including
Inspection act
- other documents
Accounting
assessment
(priority of fair value
over historical value)
Attention to
documents
confirming the
connection of direct
losses with the war
(2) Documentation
method
(3) Evaluation
method
Reflection on accounts of write-
off of losses and damages
(4) Accounts and
balance method
Financial and statistical
reporting of agricultural
enterprise
(5) Reporting method
Uploading data on direct losses to state e-resources
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situation is changeable. Following the example of the accountants of Spain, described
in the research of P. Archel et al. [20], the authors of this study tried to explain the
method of collecting and recording data for the assessment of direct losses of
agribusiness in the accounting system.
Accounting institute provides understanding and control in the socio-economic
environment, processing and interpreting information about the facts and phenomena
of the enterprises’ activity. The transformation of facts and phenomena of activities of
enterprises is carried out with the help of specific legal norms, methods, principles and
professional judgments of accountants. Therefore, the results of this study enrich
economic science at the applied level – by identifying accounting tools for verification
of direct losses of agribusiness. This study considers the requirements of Ukrainian
legislation in the accounting field. However, accountants of other countries can use the
results of this study because accounting methods are generally accepted and constitute
a theoretical component of any accounting system.
When conducting this study, the authors followed the following principles:
1) the research results should be clear to the target consumer (accountant) and
easy to apply;
2) the proposals contained in this study should effectively solve the problems
faced by agricultural enterprises in wartime;
3) the research results should be acceptable for application in other countries
where agribusiness may suffer losses due to the war.
The topic of this study is quite specific and new, so further discussions regarding
the practical experience of Ukrainian accountants described in this article is considered
a promising direction for future research.
Conclusions. Monitoring of global estimates of the extent of losses and the cost
of reconstruction and recovery in Ukraine indicates that this amount has reached
USD 411 billion. Such estimates are gradually losing their relevance, as they relate
only to the one-year period of the war [24]. This number is increasing daily as the war
continues. This figure is general and is used at the country level. However, each
business entity must provide documentary evidence of these losses to receive
compensation or financial assistance.
This article summarizes the global (quick assessment by global institutions –
World Bank, United Nations and European Commission) and object-by-object (expert
and accounting assessment by national institutions) approaches in the methodology of
assessing business losses from the war. The advantage of the object-by-object approach
tested in this article is that: the evaluation is carried out by a wide range of specialists
(appraisers, forensic experts, auditors, accountants of enterprises); the methods are
based on international accounting and financial reporting standards; calculations of lost
profits can be made on the basis of both financial and statistical reporting; control over
the quality of work is carried out by an independent audit and/or professional public
organizations of manufacturers.
This approach is more reliable, accurate and complete. While the global approach
(quick assessment of global institutions) gives a general, rather conditional and, as
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shown by the calculations in the article, a lower estimate of losses. In particular, as
evidenced by the results of the approbation of the approaches, the calculated probable
direct damage caused to real estate because of hostilities amounted to
USD 63.88 billion. At the same time, the World Bank’s quick assessment of this
parameter of damage is USD 50.4 billion. Therefore, the cost of the damage according
to the object-by-object assessment is 30 % higher than the global (quick) assessment.
That is why it is important to promote an individual (object-by-object) approach and
its further generalization at the state level, for making decisions by global institutions
regarding compensations and reparations.
However, these conclusions may be valid subject to the following caveats. It is
necessary to understand that the calculations are generalized and reliable to the extent
that the information base used is reliable. However, the information base used is partly
not official data, but expert assessments. In the calculations, the applied cost approach
and the use of other approaches can lead to radically different results.
A caveat regarding the use of the results of the article is that the cost of damage
is calculated by constructing an estimate of costs for the restoration of partially
damaged real estate. That is why the results of a mass object-by-object assessment can
be much higher, taking into account the number of completely destroyed objects.
The presented research results are only the authors’ position, which is based on
expert knowledge and analysis of available source data regarding the size of Ukraine’s
losses from the war. The war is ongoing, so it must be recognized that any calculations
until its end are incomplete and subjective. However, in this publication we have shown
that the generalized rapid assessment approach used by the World Bank cannot be
taken as a basis for the development of compensation mechanisms. The discrepancy
between generalized and object-specific approaches can only grow.
In this study, the authors proposed a simple algorithm of actions, which allows
for detecting direct damage by enterprises in a short time. The algorithm is based on
the use of five accounting methods: (1) Inventory method, (2) Documentation method,
(3) Evaluation method, (4) Accounts and balance method, (5) Reporting method.
The use of accounting tools to evaluate the direct losses is essential for the
following reason. Suppose the accounting system does not confirm the data on direct
losses. In that case, misunderstandings may arise between the participants of socio-
economic relations (a similar situation is described in the research of P. Archel et al.
[20]. In addition, the results of this study may be helpful for accountants in other sectors
of the economy, and accounting data on direct losses can be evidence in court.
However, such data must be correctly collected and recorded, which is an important
task for an accountant.
Prospects for further research are clarification of the function of accounting in the
assessment of indirect losses from the war. After all, due to the military actions in
Ukraine, most enterprises lose the potential of their activities every day. Estimating
such losses is important for understanding the total amount of losses.
Acknowledgements. The article presents the results of the research obtained
during the implementation of the project “Develop methodical approaches to
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determining losses, assessing the impact of military aggression and compensation
policy on the development of agrarian entrepreneurship” No. 2022.01/0145 of the
competition “Science for the reconstruction of Ukraine in the war and post-war
periods” at the expense of the grant support of the National Research Fund of Ukraine.
The authors thank the members of the Federation of the Auditors, Accountants
and Financiers of Agro-Industrial Complex of Ukraine for their valuable help in
collecting material for research and approbation of the obtained results.
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Citation:
Стиль – ДСТУ:
Zhuk V., Pugachov M., Shpykuliak O., Bezdushna Yu., Popko Ye. Application
of accounting for the assessment of war losses for agribusiness enterprises of Ukraine.
Agricultural and Resource Economics. 2023. Vol. 9. No. 3. Pp. 197–215
https://doi.org/10.51599/are.2023.09.03.09.
Style – APA:
Zhuk, V., Pugachov, M., Shpykuliak, O., Bezdushna, Yu., & Popko, Ye. (2023).
Application of accounting for the assessment of war losses for agribusiness enterprises
of Ukraine. Agricultural and Resource Economics, 9(3), 197–215.
https://doi.org/10.51599/are.2023.09.03.09.