Deloitte Touche Tohmatsu comments on extractive industries
Oct 09, 2001
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- We strongly support the development of an international accounting standard for mining and oil and gas companies.
- At the current time, an historical cost concept is more appropriate for accounting for the extractive industries than a model of accounting based on an estimate of the fair values of mineral properties and reserves.
- Within the context of an historical cost model, there is an urgent need to achieve consistency in recognition, measurement, and subsequent depreciation of extractive industry related assets, particularly pre-production expenditure. We favour the following treatment of pre-production costs:
- Preacquisition prospecting and exploration: Charge to expense
- Property acquisition (direct and incidental): Capitalise
- Post-acquisition exploration: Capitalise
- Evaluation or appraisal costs: Capitalise
- Development cost: Capitalise
- Construction cost: Capitalise
- All capitalised costs are subject to depreciation and an impairment test based on disposal value of the acquired rights