No changes to accounting for extractive activities
No changes to accounting for extractive activities
History
When IFRS standards were first introduced in 2005, IFRS 6 Exploration for and Evaluation of Mineral Resources was developed as an interim measure to allow explorers to continue with their existing accounting policies, pending a comprehensive review of the accounting for extractive activities by the International Accounting Standards Board (IASB). Compliance with IFRS was achieved for exploration entities by allowing a temporary exemption from having to apply the ‘hierarchy’ for developing accounting policies contained in paragraphs 11-12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. This ‘hierarchy’ applies where no IFRS standard applies to a particular item, which was the case for extractive activities. If entities undertaking extractive activities had been forced to apply the hierarchy, in many cases, they would not meet the criteria for recognition of an asset.
Project progress
Following a research project by staff from national standard-setters in Australia, Canada, Norway and South Africa, the IASB published a Discussion Paper. Feedback from the Discussion Paper provided input into the IASB’s research project on extractive activities, which commenced in 2018 and was completed in 2023, when the project was discontinued.
What’s not changing and why?
The IASB concluded its extractive activities project at its September 2023 Board meeting and decided to stick with the status quo, i.e. retain IFRS 6. The IASB will, therefore, not develop new or amended recognition, measurement or disclosure requirements for exploration and evaluation expenditure or other aspects of accounting for extractive activities. This is because investors and users indicated that the diverse accounting policies were not a significant concern in practice. For example, many users focus more on the cash flow statement (funding and liquidity) than on whether exploration and evaluation costs have been capitalised in the balance sheet. In addition, the costs of developing and implementing new requirements are likely to outweigh the benefits of improved reporting.
What is changing?
As part of the IASB’s next annual improvements to IFRS standards, the word ‘temporary’ will be removed from the heading of the section in IFRS 6 that exempts entities from applying the hierarchy in IAS 8 to its accounting policy for exploration and evaluation expenditure. This exemption will, therefore, be permanent in future.
Exploration entities will still have a choice to expense or capitalise exploration and evaluation expenditure but must assess exploration and evaluation assets for impairment if impairment indicators from paragraph 20 are present.
Explorers applying AASB 6, the Australian equivalent of IFRS 6, must continue to apply the additional Australian recognition and measurement requirements.
More information
The IASB’s summary of its project on extractive activities contains more information about the IASB’s reasons for taking on the project, its work and the key decisions made, including the reasons for deciding to retain IFRS 6.
Need help?
Financial reporting for extractive activities can be complex and involves a lot of judgement. Please contact BDO’s IFRS & Corporate Reporting team if you need help.