More on extractive activities
The objective of the extractive activities research project is to analyse the unique financial reporting issues applicable to extractive activities and to identify a basis on which a financial reporting model might be developed to address these issues. The project is not part of the Memorandum of Understanding with the US Financial Accounting Standards Board.
Why are we doing the project?
Entities engaged in minerals or oil and gas extractive activities are an important part of international capital markets. However, extractive activities - and the assets or expenditures associated with these activities - are currently not comprehensively addressed by IFRSs. In particular:
- IFRSs do not provide specific guidance for exploration, evaluation, development and production of minerals or oil and gas. There are scope exclusions in IFRSs that might otherwise apply to some of these activities, most notably in IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets. Furthermore, although IFRS 6 Exploration for and Evaluation of Mineral Resources addresses the accounting for exploration and evaluation expenditures, it was developed as an interim standard to allow (with some limitations) entities adopting IFRSs to continue to apply their existing accounting policies for these expenditures. This absence of comprehensive IFRS literature has contributed to continuing divergence in the financial reporting of extractive activities.
- Some of the practices applied are not compatible with the general principles within IFRSs. Consequently, some commentators have questioned the relevance and quality of those accounting practices.
- Users need more information about the nature and extent of the risks associated with an entity�s extractive activities. For instance, existing IFRSs do not specifically require disclosure of information about the entity�s minerals or oil and gas reserves. Some securities regulators and stock exchanges have requirements for the disclosure of this type of information, although the requirements often vary, and consequently entities with similar assets may be disclosing different information.
In order to address these issues, the IASB invited the national standard-setters in Australia, Canada, Norway and South Africa to establish an international project team to research the financial reporting of extractive activities.
What are we doing?
The research project focused on addressing the following questions:
1. How to estimate and classify the quantities of minerals or oil and gas discovered;
2. How to account for minerals or oil and gas properties;
3. How minerals or oil and gas properties should be measured; and
4. What information about extractive activities should be disclosed?
In April 2010 the IASB published for public comment the results of the project team�s research work as a discussion paper Extractive Activities. Comments on the discussion paper closed on 30 July 2010. A summary of the responses received on the discussion paper will be presented to the IASB later in 2010. In 2011, the IASB plans to make a decision on whether the extractive activities project should be added to its active agenda. If the IASB decides to add the project to its agenda, the project�s objective would be to develop an IFRS on accounting for extractive activities that would supersede IFRS 6 Exploration for and Evaluation of Mineral Resources.
How are we doing it?
The project team has been assisted throughout the research project by an advisory panel that included members from entities operating in the minerals and the oil and gas industries, auditors, users of financial reports and securities regulators. Other industry experts were consulted at various stages throughout the project, including experts from the Committee for Mineral Reserves International Reporting Standards, the Society of Petroleum Engineers Oil and Gas Reserves Committee, and the United Nations Ad Hoc Group of Experts on the Harmonisation of Fossil Energy and Mineral Resources as well as other industry and investment professionals. In addition, project team members have consulted extensively on the proposals in the published discussion paper.