Exploration for and Evaluation of Mineral Resources

In December 2004 the International Accounting Standards Board (IASB) issued IFRS 6 Exploration for and Evaluation of Mineral Resources Other IFRSs have made minor consequential amendments to IFRS 6, including Improvement to IFRSs (issued April 2009)

IN1

INTERNATIONAL FINANCIAL REPORTING STANDARD EXPLORATION FOR AND EVALUATION OF MINERAL RESOURCES

1

3

6

6

8

8

9

12

13

15

15

17

18

18

21

23

26

27

 

 

OBJECTIVE

SCOPE

RECOGNITION OF EXPLORATION AND EVALUATION ASSETS

Temporary exemption from IAS 8 paragraphs 11 and 12

MEASUREMENT OF EXPLORATION AND EVALUATION ASSETS

Measurement at recognition

Elements of cost of exploration and evaluation assets

Measurement after recognition Changes in accounting policies

PRESENTATION

Classification of exploration and evaluation assets

Reclassification of exploration and evaluation assets

IMPAIRMENT

Recognition and measurement

Specifying the level at which exploration and evaluation assets are assessed

for impairment

DISCLOSURE

EFFECTIVE DATE

TRANSITIONAL PROVISIONS

APPENDICES

A Defined terms

B Amendments to other IFRSs

 

 

International Financial Reporting Standard 6 Exploration for and Evaluation of Mineral Resources (IFRS 6) is set out in paragraphs 1-27 and Appendices A and B. All the paragraphs have equal authority. Paragraphs in bold type state the main principles Terms defined in Appendix A are in italics the first time they appear in the Standard Definitions of other terms are given in the Glossary for International Financial Reporting Standards. IFRS 6 should be read in the context of its objective and the Basis for Conclusions, the Preface to International Financial Reporting Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance

Introduction

Reasons for issuing the IFRS

IN1 The International Accounting Standards Board decided to develop an International Financial Reporting Standard (IFRS) on exploration for and evaluation of mineral resources becaus

 until now there has been no IFRS that specifically addresses the accounting for those activities and they are excluded from the scope of IAS 38 Intangible Assets. In addition, 'mineral rights and mineral resources such as oil, natural gas and similar non-regenerative resources are excluded from the scope of IAS 16 Property, Plant and Equipment Consequently, an entity was required to determine its accounting policy for the exploration for and evaluation of mineral resources in accordance with paragraphs 10-12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors there are different views on how exploration and evaluation expenditures should be accounted for in accordance with IFRSs accounting practices for exploration and evaluation assets under the requirements of other standard-setting bodies are diverse and often differ from practices in other sectors for expenditures that may be considered analogous (eg accounting practices for research and development costs in accordance with IAS 38) exploration and evaluation expenditures are significant to entities engaged in extractive activities an increasing number of entities incurring exploration and evaluation expenditures present their financial statements in accordance with IFRSs, and many more are expected to do so from 2005

IN2 The Board's predecessor organisation, the International Accounting Standards Committee, established a Steering Committee in 1998 to carry out initial work on accounting and financial reporting by entities engaged in extractive activities. In November 2000 the Steering Committee published an Issues Paper Extractive Industries

 IN3 In July 2001 the Board announced that it would restart the project only when agenda time permitted. Although the Board recognised the importance of accounting for extractive activities generally, it decided in September 2002 that it was not feasible to complete the detailed analysis required for this project, obtain appropriate input from constituents and undertake the Board's normal due process in time to implement changes before many entities adopted IFRSs in 2005

IN4 The Board's objectives for this phase of its extractive activities project are

to make limited improvements to accounting practices for exploration and evaluation expenditures, without requiring major changes that might be reversed when the Board undertakes a comprehensive review of accounting practices used by entities engaged in the exploration for and evaluation of mineral resources

to specify the circumstances in which entities that recognise exploration and evaluation assets should test such assets for impairment in accordance with IAS 36 Impairment of Assets to require entities engaged in the exploration for and evaluation of mineral resources to disclose information about exploration and evaluation assets, the level at which such assets are assessed for impairment and any impairment losses recognised

IN5  The IFRS

permits an entity to develop an accounting policy for exploration and evaluation assets without specifically considering the requirements of paragraphs 11 and 12 of IAS 8. Thus, an entity adopting IFRS 6 may continue to use the accounting policies applied immediately before adopting the IFRS. This includes continuing to use recognition and measurement practices that are part of those accounting policies requires entities recognising exploration and evaluation assets to perform an impairment test on those assets when facts and circumstances suggest that the carrying amount of the assets may exceed their recoverable amount varies the recognition of impairment from that in IAS 36 but measures the impairment in accordance with that Standard once the impairment is identified

permits an entity to develop an accounting policy for exploration and evaluation assets without specifically considering the requirements of paragraphs 11 and 12 of IAS 8. Thus, an entity adopting IFRS 6 may continue to use the accounting policies applied immediately before adopting the IFRS. This includes continuing to use recognition and measurement practices that are part of those accounting policies

requires entities recognising exploration and evaluation assets to perform an impairment test on those assets when facts and circumstances suggest that the carrying amount of the assets may exceed their recoverable amount varies the recognition of impairment from that in IAS 36 but measures the impairment in accordance with that Standard once the impairment is identified

 

International Financial Reporting Standard 6 Exploration for and Evaluation of Mineral Resources

Objective

The objective of this IFRS is to specify the financial reporting for the exploration  for and evaluation of mineral resources  In particular, the IFRS requires

limited improvements to existing accounting practices for exploration and evaluation expenditures entities that recognise exploration and evaluation assets to assess such assets for impairment in accordance with this IFRS and measure any impairment in accordance with IAS 36 Impairment of Assets

disclosures that identify and explain the amounts in the entity's financial statements arising from the exploration for and evaluation of mineral resources and help users of those financial statements understand the amount, timing and certainty of future cash flows from any exploration and evaluation assets recognised

Scope

 

An entity shall apply the IFRS to exploration and evaluation expenditures that it incurs The IFRS does not address other aspects of accounting by entities engaged in the exploration for and evaluation of mineral resources An entity shall not apply the IFRS to expenditures incurred before the exploration for and evaluation of mineral resources, such as expenditures incurred before the entity has obtained the legal rights to explore a specific area after the technical feasibility and commercial viability of extracting a mineral resource are demonstrable

Recognition of exploration and evaluation assets

Temporary exemption from IAS 8 paragraphs 11 and 12

When developing its accounting policies, an entity recognising exploration and evaluation assets shall apply paragraph 10 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

 Paragraphs 11 and 12 of IAS 8 specify sources of authoritative requirements and guidance that management is required to consider in developing an accounting policy for an item if no IFRS applies specifically to that item. Subject to

paragraphs 9 and 10 below, this IFRS exempts an entity from applying those paragraphs to its accounting policies for the recognition and measurement of exploration and evaluation assets

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