IFRS 6 - Extractive industries

Publication date: 21 Feb 2016

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In October 2011 the IFRS IC published IFRIC 20, 'Stripping costs in the production phase of a surface mine'. This interpretation sets out the accounting for overburden waste removal (stripping) costs in the production phase of a mine. The interpretation may require mining entities reporting under IFRS to write off existing stripping assets to opening retained earnings if the assets cannot be attributed to an identifiable component of an ore body.

Extractive activities are the activities undertaken by entities when searching for, and ultimately extracting, minerals, oil or natural gas. The current standard, IFRS 6, 'Exploration for and evaluation of mineral resources', was issued in 2004 as an interim standard pending completion of a research project. The research team has now issued a discussion paper which that is open for comment until 30 July 2010.

Overview

IFRS 6, 'Exploration for and evaluation of mineral resources', addresses the financial reporting for the exploration for and evaluation of mineral resources. It does not address other aspects of accounting by entities engaged in the exploration for and evaluation of mineral reserves (such as activities before an entity has acquired the legal right to explore or after the technical feasibility and commercial viability to extract resources have been demonstrated). Activities outside the scope of IFRS 6 are accounted for according to the applicable standards (such as IAS 16, 'Property, plant and equipment', IAS 37, 'Provisions, contingent liabilities and contingent assets', and IAS 38, 'Intangible assets')

The accounting policy adopted for the recognition of exploration and evaluation assets should result in information that is relevant and reliable. As a concession, certain further rules of IAS 8, 'Accounting policies, changes in accounting estimates and errors', need not be applied. This permits companies in the extractive sector to continue, for the time being, to apply policies that were followed under national GAAP that would not comply with the requirements of IFRS. The accounting policy may be changed only if the change makes the financial statements more relevant and no less reliable, or more reliable and no less relevant – in other words, if the new accounting policy takes it closer to the requirements in the IASB's Framework.

Exploration and evaluation assets are initially measured at cost. They are classified as tangible or intangible assets, according to the nature of the assets acquired. Management applies that classification consistently. After recognition, management applies either the cost model or the revaluation model to the exploration and evaluation assets, based on IAS 16, 'Property, plant and equipment', or IAS 38, 'Intangible assets', according to nature of the assets. As soon as technical feasibility and commercial viability are determined, the assets are no longer classified as exploration and evaluation assets.

The exploration and evaluation assets are tested for impairment when facts and circumstances suggest that the carrying amounts may not be recovered. The assets are also tested for impairment before reclassification out of exploration and evaluation. The impairment is measured, presented and disclosed according to IAS 36, 'Impairment of assets', except that exploration and evaluation assets are allocated to cash-generating units or groups of cash-generating units either of which must be no larger than a segment. Management discloses the accounting policy adopted, as well as the amount of assets, liabilities, income and expense and investing cash flows arising from the exploration and evaluation of mineral resources.

IFRIC 20, ‘Stripping costs in the production phase of a surface mine’, applies to waste removal costs incurred in surface mining activity during the production phase.

 
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