The Value of the Right to the Sea: Accounting Treatment of Fishing Licences Under ÅRL and IFRS

Abstract

This thesis examines the recognition and measurement of fishing rights in the Faroese pelagic fishing sector, with a specific focus on comparing local regulation under the Faroese Financial Statements Act (Ársroknskaparlógin, ÅRL) to International Financial Reporting Standards (IFRS). The analysis is limited to pelagic fishing vessels and associated fishing rights.The study is structured in three parts: (1) a theoretical analysis of relevant Faroese legislation, including the Fisheries Act and ÅRL, compared to IAS 38, IAS 36, and IAS 20; (2) an empirical review of financial statements from selected Faroese fishing companies; and (3) a comparative analysis estimating how financial reporting would differ under IFRS.Under current Faroese legislation, fishing rights are granted by the state, often free of charge, and valid until 1 January 2034, with annual extensions proposed by the Minister of Fisheries. ÅRL requires intangible assets to be amortized over a maximum of 20 years, even when the rights effectively have an indefinite economic life. IFRS, in contrast, allows indefinite useful lives without amortization, subject to annual impairment testing.The empirical analysis finds that companies generally comply with ÅRL but consistently fail to justify amortization periods exceeding five years as required by § 53. In one case, amortization over 25 years was applied without proper disclosure. Impairment testing was also largely absent, even where indicators of value decline were present.A DCF-based valuation of vessels and fishing rights (treated as single CGUs) shows that recoverable values significantly exceed book values. While initial recognition would remain unchanged under IFRS due to the lack of an active market, subsequent measures would differ. IFRS allows indefinite useful lives without amortization, subject to annual impairment testing — unlike ÅRL, which requires systematic depreciation regardless of economic longevity. As a result, IFRS would likely yield higher asset values and better reflect economic substance.The thesis concludes that partial adoption of IFRS principles — particularly from IAS 38, 36, and 20 — could improve the relevance and accuracy of financial reporting in the Faroese fishing industry, especially regarding high-value, non-amortizing intangible assets.