for Accounting Professionals
IFRS 6 Exploration for and Evaluation of Mineral Resources
2013
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IFRS 6 Exploration for and Evaluation of Mineral Resources
IFRS WORKBOOKS
(1 million downloaded)
Welcome to the EU Tacis IFRS Workbooks sixth (2013) edition! This is the tenth anniversary of the first edition in 2003. The changes from the 2012 edition are minimal,
with no new standard issued in the past year. Major changes are anticipated to IFRS 9, IFRS 4, IAS 17 and IAS 18. Exposure drafts (proposals) have been issued, but
have not yet been incorporated into the standards. To the books, we have added an article: ‘IFRS- grabbing the tiger by the tail’ which has been published by bankir.ru in
Russian. This article covers IFRS teaching issues for each standard and a number of opinions and discussion points.
The set of books provides a book for every standard, plus three books on consolidation. Financial instrument bookkeeping is covered in IAS 32/39 (book 3) and in IFRS 9.
IFRS 7 is complemented by FINREP, which illustrates practical use and presentation formats. An introduction to IFRS and transformation models from Russian accounting
to IFRS complete the set.
Each workbook is a combination of Information, Examples, Self-Test Questions and Answers.
Thanks are due to those who made these publications possible and to you, our readers, for your continued support. I would like to express my gratitude to: Igor Sykharev
and Tatiana Trifonova of the Ministry of Finance who provided a link from the Ministry’s site. Gulnara Makhmutova and Adel Valeev provided the updated Russian
texts and editing. Marina Korf and Yulia Ykhanova of bankir.ru provided help, advice and space on its website. Sergey Dorozhkov and Elina Buzina of Association of
Russian Bankers’ Institute of Banking http://www.ibdarb.ru/msfo.php ran excellent IFRS courses on all standards which enabled us to test this material and learn new
insights from them and the participants. Please join us there for the best consolidation course in Russia.
World Bank courses for the Bank of Tanzania (‘BOT’) provided new IFRS and banking insights: thanks to Albert Mkenda BOT and my colleague Benson Mahenya
among many others. IFRS assistance to the Bank of Mongolia (‘BOM’) with PricewaterhouseCoopers (thanks to Ekaterina Nekrasova, Jelena Pesic and Vladislav
Kononenko) provided exposure to Mongolian commercial bank reporting and blending IFRS with bank prudential ratios. Oyungerel Gonchig, Project Manager at World
Bank, Mongolia, and our counterparts at BOM: Oyuntsatsral Banid, Bunchinsuren Dagva, Borkhuu Gotovsuren, Batmaa Ochirbat and Gantsetseg Myagmarjay
contributed to a memorable project.
On the back page are notes covering copyright details and the history of the series.
Please tell your friends and colleagues where to find our books. We hope that you find them useful.
Robin Joyce
Professor of the Chair of International Banking and Finance,
Financial University under the Government of the Russian Federation
Professor, Russian Academy of National Economy and Public
Administration under the President of the Russian Federation
Visiting Professor of the Siberian Academy of Finance and Banking
Moscow, Russia
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2013
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IFRS 6 Exploration for and Evaluation of Mineral Resources
IFRS 6 -Exploration for and Evaluation of Mineral Resources
research as an expense with the possible capitalization of
development.
Definitions
In practice, the Exploration for and Evaluation of Mineral Resources
varied from undertaking to undertaking. Many did not disclose their
accounting policies.
Some would not meet the requirements of IAS 38 if it had been
applied.
(i) Exploration and evaluation assets
Exploration and evaluation expenditures recognised as assets in
accordance with the undertaking’s accounting policy.
(ii) Exploration and evaluation expenditures
Expenditures incurred by an undertaking in connection with the
exploration for and evaluation of mineral resources before the
technical feasibility and commercial viability of extracting a mineral
resource are demonstrable.
(iii)
Exploration for and evaluation of mineral resources
The search for mineral resources, including minerals, oil, natural
gas and similar non-regenerative resources after the undertaking
has obtained legal rights to explore in a specific area, as well as the
determination of the technical feasibility and commercial viability of
extracting the mineral resource.
Reasons for issuing IFRS 6
Exploration and evaluation expenditures are significant to
undertakings engaged in extractive activities. IAS 38 Intangible
Assets does not cover this issue. IAS 38 insists on treating
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IFRS 6 is the first step towards a comprehensive standard on the
issue. It allows the continued use of undertaking’s
existing accounting policies on the issue (whatever they are), but
requires disclosure and tests for impairment on exploration and
evaluation assets. Changes to existing accounting policies should
only be made if they benefit the users of the financial statements.
Scope
An undertaking shall apply IFRS 6 to exploration and evaluation
expenditures that it incurs. IFRS 6 does not address other aspects
of accounting by undertakings engaged in the exploration for and
evaluation of mineral resources.
An undertaking shall not apply IFRS 6 to expenditures incurred:
(i) before the exploration for and evaluation of mineral
resources, such as costs incurred before the undertaking
has obtained the legal rights to explore a specific area.
(ii) after the technical feasibility and commercial viability of
extracting a mineral resource are demonstrable.
Costs before legal rights are obtained should be expensed.
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IFRS 6 Exploration for and Evaluation of Mineral Resources
(iv) are prudent; and
Costs related to the development of mineral resources shall not be
recognised as exploration and evaluation assets. The Conceptual
Framework1 and IAS 38 Intangible Assets provide guidance on the
recognition of assets arising from development.
Recognition of exploration and evaluation assets
When developing its accounting policies, an undertaking recording
exploration and
evaluation assets shall apply paragraph 10 of IAS 8 Accounting
Policies, Changes in
Accounting Estimates and Errors:
In the absence of an IFRS that specifically applies to a transaction,
other event or
condition, management shall use its judgement in developing and
applying an
accounting policy that results in information that is:
(1) relevant to the economic decision-making needs of users; and
(2) reliable, in that the financial statements:
(i) represent faithfully the financial position, financial performance
and cash flows of the undertaking;
(ii) reflect the economic substance of transactions, other events and
conditions, and not merely the legal form;
(iii) are neutral (free from bias);
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(v) are complete in all material respects.
Measurement of exploration and evaluation assets
Measurement at recognition
Exploration and evaluation assets shall be measured at cost.
Elements of cost of exploration and evaluation assets
An undertaking shall determine an accounting policy specifying
which expenditures are
recognised as exploration and evaluation assets and apply the
policy consistently.
An undertaking considers the degree to which the expenditure can
be associated with finding specific mineral resources.
The following are examples of expenditures that might be included
in the initial
measurement of exploration and evaluation assets (the list is not
exhaustive):
(i) acquisition of rights to explore;
(ii) topographical, geological, geochemical and geophysical studies;
(iii) exploratory drilling;
(iv) trenching;
(v) sampling; and
(vi) activities in relation to evaluating the technical feasibility and
commercial
viability of extracting a mineral resource.
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IFRS 6 Exploration for and Evaluation of Mineral Resources
rights), whereas others are tangible (such as vehicles and drilling
rigs).
Removal and Restoration
In accordance with IAS 37 Provisions, Contingent Liabilities and
Contingent Assets an
undertaking recognises any obligations for removal and restoration
that are incurred
during a particular period as a consequence of having undertaken
the exploration
for and evaluation of mineral resources.
Example
Having signed a contract to mine for minerals in a particular place
and the contract requiring the undertaking to make safe and restore
the place at the end of the contract,
a provision is made immediately for the making safe and
restoration. The amount will be discounted to reflect the time value
of money between today and the end of the contract. (See IAS 37
workbook.)
Presentation
Classification of exploration and evaluation assets
An undertaking shall classify exploration and evaluation assets as
tangible or intangible and apply the classification consistently.
Some exploration and evaluation assets are treated as intangible
(such as drilling
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When a tangible asset is consumed in developing an intangible
asset, the amount
reflecting that consumption is part of the cost of the intangible
asset.
Measurement after recognition
After recognition, an undertaking shall apply either the cost model
or the revaluation
model to the exploration and evaluation assets (see IAS 16 and IAS
38)
Changes in accounting policies
An undertaking may change its accounting policies for exploration
and evaluation expenditures if the change makes the financial
statements more relevant to users and no less reliable, or more
reliable and no less relevant to those needs. An undertaking shall
judge relevance and reliability using the criteria in IAS 8.
An undertaking shall demonstrate that the change brings its
financial statements closer to meeting the criteria in IAS 8, but the
change need not achieve full compliance with those criteria.
Reclassification of exploration and evaluation assets
An exploration and evaluation asset shall no longer be classified as
such when the
technical feasibility and commercial viability of extracting a
mineral resource are
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IFRS 6 Exploration for and Evaluation of Mineral Resources
demonstrable. Exploration and evaluation assets shall be assessed
for impairment, and any impairment loss recorded, before
reclassification.
exploration and evaluation assets for impairment (the list is not
exhaustive):
(i) the period for which the undertaking has the right to explore in
the specific area has expired during the period, or will expire in the
near future, and is not expected to be renewed.
Impairment
Recognition and measurement
IFRS 6 varies the recognition criteria of impairment from that in IAS
36 but measures the impairment in accordance with IAS 36 once
the impairment is identified.
In short, exploration and evaluation assets can only be justified if
there is a reasonable expectation that they will earn the same, or
greater, amount of revenue than the asset value.
Revenue must be discounted when it will arise one year or more in
the future. If the revenue is less (or nil), the asset is impaired to
reflect the revenue shortfall.
Exploration and evaluation assets (and its cash-generating unit –
see IAS 36) shall be assessed for impairment when facts and
circumstances suggest that the carrying amount of an exploration
and evaluation asset may exceed its recoverable amount.
When the carrying amount exceeds the recoverable amount, an
undertaking shall measure, present and disclose any resulting
impairment loss in accordance with IAS 36.
For only the purposes of IFRS 6, one or more of the following facts
and circumstances indicate that an undertaking should test
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(ii) substantive expenditure on further exploration for and evaluation
of mineral resources in the specific area is neither budgeted, nor
planned.
(iii) exploration for and evaluation of mineral resources in the
specific area
have not led to the discovery of commercially viable quantities of
mineral
resources and the undertaking has decided to discontinue such
activities in the
specific area.
(iv) sufficient data exist to indicate that, although a development in
the specific area is likely to proceed, the carrying amount of the
exploration and evaluation asset is unlikely to be recovered in full
from successful development or by sale.
In any such case, or similar cases, the undertaking shall perform an
impairment test in
accordance with IAS 36. Any impairment loss is recognised as an
expense in accordance with IAS 36.
Specifying the level at which exploration and evaluation assets
are assessed for impairment
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IFRS 6 Exploration for and Evaluation of Mineral Resources
An undertaking shall determine an accounting policy for allocating
exploration and
evaluation assets to cash-generating units (or groups of cashgenerating units) – see IAS 36- for the purpose of assessing such
assets for impairment.
Each cash-generating unit, or group of units, to which an
exploration and evaluation asset is allocated shall not be larger
than an operating segment determined in accordance with IFRS 8
Operating Segments.
The level identified by the undertaking for the purposes of testing
exploration and
evaluation assets for impairment may comprise one, or more, cashgenerating units.
Disclosure
An undertaking shall disclose information that identifies and
explains the amounts
recorded in its financial statements arising from the exploration for
and evaluation of mineral resources.
An undertaking shall disclose:
(ii) the amounts of assets, liabilities, income and expense and
operating and investing cash flows arising from the exploration for
and evaluation of mineral resources.
An undertaking shall treat exploration and evaluation assets as a
separate class of assets and make the disclosures required by
either IAS 16 or IAS 38, consistent with how the assets are
classified.
The future of IFRS 6
This short standard prescribes disclosure and impairment testing
and gives guidance as to changing accounting policies.
IFRS 6 was issued in December 2004, with suggestions that it
would be updated to a harmonization of methods (two alternative
methods such as in IAS 2, IAS 16 and IAS 38) and / or a standard
(only one method for all).
Its style was similar to IFRS 4 Insurance Contracts, which also
allowed existing policies to continue, rather than limiting them.
There is no indication when any significant update to IFRS 6 will
occur.
(i) its accounting policies for exploration and evaluation
expenditures including the recognition of exploration and evaluation
assets.
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IFRS 6 Exploration for and Evaluation of Mineral Resources
IFRS WORKBOOKS (History and Copyright)
(1 million downloaded)
This is the latest version of the legendary workbooks in Russian
and English produced by 3 TACIS projects, sponsored by the
European
Union
(2003-2009)
and
led
by
PricewaterhouseCoopers. They have also appeared on the
website of the Ministry of Finance of the Russian Federation.
We wish to especially thank Elizabeth Appraxine (European
Union) who administered these TACIS projects, Richard J.
Gregson (Partner, PricewaterhouseCoopers) who led the projects
and all friends at bankir.ru for hosting the books.
TACIS project partners included Rosexpertiza (Russia), ACCA
(UK), Agriconsulting (Italy), FBK (Russia), and European Savings
Bank Group (Brussels).
The workbooks cover all standards of IFRS based accounting. They
are intended to be practical self-instruction aids that professional
accountants can use to upgrade their knowledge, understanding
and skills.
Each workbook is a self-standing short course designed for
approximately three hours of study. Although the workbooks are
part of a series, each one is independent of the others. Each
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Having written the first three editions, we continue to update them
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