Exploration for and Evaluation of
Mineral Resources: IFRS 6
Wiecek and Young
IFRS Primer
Chapter 12
Exploration for and Evaluation
of Mineral Resources
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Related standards
IFRS 6
Current GAAP comparisons
IFRS financial statement disclosures
Looking ahead
End-of-chapter practice
Related Standards
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FAS 144 Accounting for the impairment or
disposal of long-lived assets
FAS 69 Disclosures about oil and gas
producing activities
FAS 25 Amendment of FASB Statement No.
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FAS 19 Financial accounting by oil and gas
producing companies
Related Standards
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IAS 8 Accounting policies, changes in
accounting estimates and errors
IAS 16 Property, plant and equipment
IAS 36 Impairment of assets
IAS 37 Provisions, contingent liabilities and
contingent assets
IAS 38 Intangible assets
IFRS 6 - Overview
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Objective and scope
Recognition and measurement of exploration
and evaluation assets
Impairment
Disclosure
IFRS 6 – Objective and
Scope
IFRS 6 is limited to the accounting for and
reporting of costs associated only with the
exploration and evaluation of mineral
resources. These activities are defined as:
- the search for mineral resources…after the
entity has obtained legal rights to explore in a
specific area, and
- the determination of the technical feasibility
and commercial viability of extracting the
mineral resource.
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IFRS 6 – Objective and Scope
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IFRS 6 is an interim measure pending
completion of a major project on extractive
activities.
Permits continuation of accounting policies
used prior to adoption of IFRS
Accounting policies may be inconsistent with
IFRS Framework
IFRS 6 – Recognition and
Measurement of Exploration and
Evaluation Assets
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Recognition:
Companies use a variety of methods to account
for exploration and evaluation activities, from
expensing all related costs to fully capitalizing
them
Therefore, exploration and evaluation assets are
defined in terms of the policy each company
chooses
IFRS 6 – Recognition and
Measurement of Exploration and
Evaluation Assets
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Exploration and evaluation assets are
recognized at cost
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Examples of costs that may be capitalized:
- Cost of exploration rights, geological studies,
exploratory drilling and sampling, and
evaluating technical and commercial viability of
extraction
IFRS 6 – Recognition and
Measurement of Exploration and
Evaluation Assets
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Classification of exploration and evaluation
assets:
IFRS 6 - Impairment
Impaired? When facts and circumstances
suggest that carrying amount > recoverable
amount. Consider:
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the right to explore expires and is not expected to be
renewed
no other substantial expenditures are planned for exploration
or evaluation in the area
the entity decides to stop exploration and evaluation activities
because viable quantities have not been found in the area
although development is likely, the costs capitalized as
exploration and evaluation assets exceed the amounts that
are likely to be recovered
Impairment losses are taken to profit or loss – may be reversed
IFRS 6 - Disclosure
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Disclosure objective: to identify and explain
amounts recognized in the financial
statements that result from exploration and
evaluation activities
If classified as PP&E, use IAS 16
If classified as intangible asset, use IAS 38
IFRS 6 - Disclosure
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Minimum disclosure:
Accounting policies for exploration and
evaluation expenditures and their
capitalization as assets
The amount of assets, liabilities, income,
expense, and operating and investing cash
flows from exploration and evaluation
activities
Current GAAP Comparisons
Page 156 of 164 of
http://www.kpmg.co.uk/pubs/IFRScomparedtoU
.S.GAAPAnOverview(2008).pdf
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IFRS Financial Statement
Disclosures
Royal Dutch Shell plc
http://wwwstatic.shell.com/static/investor/downloads/fin
ancial_information/reports/2007/2007_annual
_report.pdf
Accounting policies – page 122 of 224
Key accounting estimates – page 127 of 224
Property, plant & equipment – pages 135-137
of 224
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Looking Ahead
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Comprehensive research project underway
for approach to resolving issues unique to
upstream extractive activities in mining and
oil and gas industries
Discussion paper expected late 2009, with
decision to proceed to be determined in late
2010
End-of-Chapter Practice
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