At the final education session for the extractive activities research project, the Board discussed some general features of a potential disclosure model for minerals and oil & gas extractive activities. The Board also considered issues relevant to the drafting of the research project�s discussion paper, which is planned for completion by the end of 2008.
The Board agreed with the general direction of the disclosure proposals. It suggested that the disclosure objective identified by the project team could be refined to refer more specifically to users� information needs relating to extractive activities. In setting some parameters for the types of disclosures being proposed, the Board agreed that the discussion paper should propose that the same types of information be disclosed across the mining and oil & gas industries. This does not mean that the disclosures presented would be identical for both industries.
The Board suggested that users� needs should be the primary driver for identifying the disclosures that should be proposed in the discussion paper. However, the document should also address preparation and presentation considerations associated with those disclosures. The project team�s disclosure proposals are not identical to the disclosures proposed by the US Securities and Exchange Commission to modernise its oil & gas definition and disclosure requirements. Board members suggested that the discussion paper should invite comments on the implications of this.
The Board indicated support for the discussion paper to propose the disclosure of:
- proved and probable reserve volumes. The disclosure of those volumes should be disaggregated by commodity type and by significant risk attributes and the reserve volumes attributable to subsidiaries and investments should be presented on the same basis as applies to the accounting for equity interests in other entities in consolidated financial statements;
- key assumptions associated with the estimate of reserve volumes and a sensitivity analysis of the effect of changes in those assumptions. The discussion focused on commodity price assumptions and the Board indicated that the use of market participant assumptions is preferred. The fair value hierarchy establishes a process for selecting the most relevant input by referring to Level 1, Level 2 and Level 3 inputs. This may help to identify the pricing assumption that should be used.
- an explanation of changes in the reserve volumes estimates from year to year. This could be a narrative explanation or a quantitative reconciliation, depending on the granularity of the reserve volume disclosures.
- a current value measurement, such as a standardised measure of discounted cash flows, and the key assumptions necessary for a user to make use of that measurement. This would not be disclosed if the minerals or oil & gas assets are measured on the balance sheet at fair value or some other current value measurement. In that case, an entity would provide disclosures similar to those required in the US by paragraph 32 of SFAS 157 Fair Value Measurements.
- exploration, development and operating cash outflows, which could be disclosed as a time series over the defined period, such as five years.
The Board received a report on the outcomes from a round-table discussion of the disclosure proposals of the Publish What You Pay coalition. Four Board members and the project team participated in this discussion with representatives from the coalition, investors, mining and oil & gas companies, auditors, and the International Public Sector Accounting Standards Board. The discussion paper will discuss those proposals.
The Board noted that the research project�s discussion paper will be published as an IASB document but contain only the project team�s views. The discussion paper will be the initial due process document for the Board�s deliberations on extractive activities, if the Board subsequently adds this project to its active agenda.