IAS 16 — Accounting for production phase stripping costs in the mining industry
The Committee discussed the final draft of the proposed Interpretation on accounting for stripping costs in the production phase.
Description of a stripping campaign
The draft Interpretation describes a stripping campaign as that which "...will typically be planned in advance and form part of the mine plan. It will have a defined start date and it will end when the entity has completed the waste removal activity necessary to access the ore to which the campaign is associated."
The Committee was asked to consider whether the proposed description was sufficient or whether additional wording should be added. A Committee member expressed his surprise and concern that the description of a stripping campaign is considered at such a late stage of the project, seeing that the Interpretation on how to account for the stripping campaign costs is almost complete. The Committee had a very long discussion on whether it was necessary to include a description/definition of a stripping campaign in the Interpretation. Those in favour of including the description noted that it was important to distinguish routine stripping from a stripping campaign as only the stripping campaign is in the scope of the Interpretation.
Those not in favour of a description noted that the requirements relating to a defined start date are impracticable to apply in practice. In their opinion, a stripping campaign would be clearly identifiable from the life of mine plan and that the industry has no problem in identifying what constitutes a stripping campaign. It was also noted that the Committee did not yet have a discussion on what routine stripping is.
After a rather prolonged discussion on it was generally agreed that a description of a stripping campaign should be included in the proposed Interpretation, but that the word ‘typically’ should be removed from the proposed description to limit the ability of entities to get around applying the Interpretation. The Chairman instructed the staff to revise the proposed description to take into consideration all the comments made and present the new description for consideration at a later session.
The staff presented two alternative descriptions of a stripping campaign following the concerns raised by the Committee at the previous day’s meeting. Without much deliberation, the Committee agreed on including the following description of a stripping campaign in the draft Interpretation:
"A stripping campaign is a systematic process undertaken to gain access to a specific section of the ore base, that is a more aggressive process than routine waste clearing activities. This stripping campaign is planned in advance and forms part of the mine plan. It will have a defined start date and it will end when the entity has completed the waste removal activity necessary to access the ore to which the campaign is associated."
It was further agreed to ask a specific question in the draft Interpretation on whether this description is appropriate. The draft Interpretation will be exposed for a period of 90 days once clearance has been obtained at the July Board meeting.
Scope of Interpretation
The draft Interpretation limits the scope to waste removal costs that are incurred in surface mining activity during the production phase of the mine; the Committee unanimously agreed to with the proposed scope.
A Committee member questioned whether it was the Committee's intention to prohibit analogy to similar situations as was implied in the draft basis for conclusions. The Chairman responded that although the idea is not to prohibit analogy, the Interpretation addresses a very specific question from the extractive industry and that analogy to other 'similar' situations would not be practical. It was agreed that the basis for conclusions should explain why the Committee did not consider other similar situations and only focussed on the specific question asked.
The Committee considered whether to include any specific disclosure requirements in the proposed Interpretation or ask constituents if there is specific information relating to the stripping campaign that would be useful if disclosed.
Several Committee members were not comfortable with asking an open question on which disclosures would be useful, as it will end up with a long list of disclosures. Also, should the Committee then consider some of these disclosures useful, it will have to exposure them for public comment to comply with due process.
Some Committee members were of the opinion that any relevant disclosures would already be required by IAS 1, IAS 2, IAS 16 and/or IAS 38 and that additional disclosures would overlap with existing disclosures.
The Committee agreed to rephrase the question to highlight the disclosures required by IAS 16 and ask whether there is any other information that is required in addition to that.
The Committee considered the proposed transitional provisions which require prospective application of the proposed Interpretation from the effective date and that the existing carrying amounts of assets are used as opening balances at that date.
A Committee member questioned whether this imply that an entity will retain any costs previously capitalised, even it would not be permitted in accordance with the Interpretation. A number of other Committee members echoed this concern and also questioned the period over which such an asset, calculated based on the stripping ratio method would be amortised.
Another Committee member also enquired whether an entity would be prohibited from retrospectively applying the Interpretation is all the relevant information is considered available. The Chairman responded that retrospective application would require the recalculation of amortisation from the beginning of the mine's life and that this will invariably involve the use of hindsight.
The majority of Committee members supported the proposal to require prospective application.
Subject to the changes required pertaining to the revised description of a stripping campaign and minor editorial amendments, the Committee aims to issue the draft Interpretation before the end of August for public comment.