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Issue Description:

Accounting for stripping costs in the production phase of a mine.

Discussion at the November 2009 IFRIC Meeting

The IFRIC considered a request to add to its agenda a project to clarify accounting treatment for stripping costs in the production phase.

An educational presentation was made by Niall Weatherstone, Chief Advisor for Evaluation at Rio Tinto. The presentation clarified the technical and geological aspects of mining as well as significance of the stripping costs, especially in open pit mining. The main aspect of the presentation was treatment of waste and overburden. During production, waste and ore are mined together, and some of the waste represents an additional 'development' activity needed to secure access to the next level of ore ('push-backs').

The IFRIC noted that capitalisation of pre-production stripping costs (cost to remove waste before the actual ore is mined) is not contentious. The real issue is capitalisation of stripping costs in the production phase of the mine.

The IFRIC also noted that stripping activity in the production phase occurs because development might continue through removal of overburden in portions of the mine, to reach ore that would be extracted in the current or in later periods. As such, stripping creates a future economic benefit. Many IFRIC members thought that conceptually such costs should be capitalised as well. Nonetheless, some IFRIC members expressed concerns about whether such costs could be distinguished from normal production cost and whether artificial arbitrary rules would not have to be introduced.

The IFRIC considered four alternatives on accounting for stripping costs during production:

• expense when incurred
• capitalise as a cost of inventory as variable production cost (the US approach)
• capitalise and attribute to reserves benefited in a systematic and rational manner (the Canadian approach)
• capitalise using a strip ratio

Most IFRIC members thought that Alternative 3 was the conceptually right answer, but Alternative 4 could be used as an expedient. Some IFRIC members were concerned with this view, as they believed that the main difference between Alternatives 3 and 4 was that Alternative 4 explicitly considers future costs which would be inconsistent with the Framework. For some IFRIC members the most pertinent issue was the unit of account issue – is the unit of account one mine? Some IFRIC members raised other issues with both alternatives 3 and 4 (for example, reflecting the profitability of each layer of ore and reflecting how the business of the pit is managed).

The IFRIC noted that treatment of production stripping cost was very diverse all over the world. In particular, given transition of Canada to IFRSs, several conflicting practices would be present in IFRS jurisdictions.

One IFRIC member asked about the relationship of stripping cost and the draft Extractive Industries Discussion Paper (DP). The staff clarified that the DP is not expected to treat the production stripping costs in detail. The DP will acknowledge that capitalisation might be appropriate. Moreover, the staff noted that the IASB is not expected to finalise an extractive industries Standard for three to five years.

After discussion, the IFRIC agreed to add this project to its agenda and directed the staff to explore scope of the project, capitalisation alternatives, and possible amortisation methods. The discussion is expected to resume at the next IFRIC meeting.

Discussion at the January 2010 IFRIC Meeting

Accounting for Stripping Costs in the Production Phase – Definition of Scope

Following on its decision to add the matter to its agenda, the IFRIC discussed how to define the scope of its project on accounting for stripping costs in the production phase of a mine. The two main issues discussed were:

• whether the scope should include all extractive activities or only the extraction of minerals; and
• whether the scope should have an industry of activity focus.

One IFRIC member enquired whether staff has had consultations with constituents in industries other than mining, as the principles proposed in the accounting for stripping costs can equally be applied to other industries with similar activities. Another member also enquired why the proposed scope of the Interpretation has been limited to the mining industry. This member expressed a preference for defining the activities to be covered by the Interpretation as opposed to the industry. Several IFRIC members shared this view.

One IFRIC member agreed in principal with the view, but noted that practically and realistically it may not be possible for the IFRIC to develop an Interpretation with such broad scope in the foreseeable future as the IFRIC would require further education sessions on the other industries prior to concluding whether the principles would be appropriate. On that basis the member felt that the scope should be limited to the mining industry as the original request submitted to the IFRIC was from that industry. Another member remarked that if the IFRIC or the staff have already potentially identified areas where the proposed Interpretation can be applied, those areas should not be ignored at the moment.

During IFRIC deliberations, one member said that if the principles can be applied to other industries or activities, the Basis for Conclusions to the Interpretation can contain a paragraph similar that included in IFRIC 15, stating that the Interpretation can be analogised to other similar activities. The Chairman noted that in order for the IFRIC to conclude that the proposed Interpretation should allow analogy, it is first necessary to define its scope and formulate the appropriate accounting treatment. Analogy to other activities can only be decided on once the project has been completed.

Another IFRIC member stated that the proposed wording of the scope paragraph is overly complex and could be simplified by using 'wasted' material instead. Staff responded that although the wording has been proposed by the constituents, they agree with the suggestion.

The Chairman then reminded the IFRIC that it has a responsibility to hone in on where divergence in practice has originated and address that divergence. In this case, it was the mining industry, and the scope of the proposed Interpretation should be limited to that.

The IFRIC agreed that the scope of the interpretation should refer to the activity of overburden removal and should not be more specific.

The IFRIC then discussed whether the scope of the proposed Interpretation should be limited to the production phase or include the other mining activities as well. One IFRIC member noted that it is important to understand why the proposed scope is limited to the production phase. Another IFRIC member noted that limiting the scope to the production phase only will open the door for accounting arbitrage. For that reason, although both the development and production phases should be addressed in the proposed Interpretation, the production phase has to be clearly defined.

The Chairman explained that mines do not have difficulty in distinguishing between the development phase and the production phase as it is quite easy to determine when production has started. He also explained that the divergence in practice in accounting for stripping costs does not occur in the development phase, but rather once production has started, hence the request for an IFRIC Interpretation.

One IFRIC member remarked that the distinction is difficult in practice, as it is possible to have started production at one pit on the mine, but still be in the development phase for another pit. It is therefore important to understand what the unit of account is. Another member noted that the proposed definition of the production phase must remain consistent with the existing guidance included in IAS 16.

One member questioned whether the distinction between the development and production phase is really important. It was suggested that the proposed Interpretation should focus on when the definition of an asset has been met, in other words, when future economic benefits become available to the entity.

When asked whether any of the IFRIC members disagreed with the staff's proposal to confine the scope to the production phase, no IFRIC members disagreed.

The IFRIC was then asked whether there is agreement with confining further confining the scope to surface mining – a type of mining where soil and rock overlying the mineral deposit are removed. One IFRIC member noted that if the activities to which the proposed Interpretation applies are set out, it should not be necessary to limit it to surface mining. Another member remarked that practically, if the scope is not limited, inadvertent consequences will be created. This member was supportive of limiting the activities to which the proposed Interpretation can be applied, as long as those activities are clearly defined. The Chairman reminded the IFRIC that the activity the IFRIC was asked to provide guidance on was the removal of overburden in surface mining activities. None of the members seemed to disagree with the proposal.

The discussion then turned to whether the scope of the proposed Interpretation should be restricted only to circumstances where overburden removal activity results in a future economic benefit being created. Without much discussion, the IFRIC agreed with the proposal not to limit the scope to circumstances where a future benefit is created.

The IFRIC then returned to the first question on whether the scope should be limited to mining activities only. One IFRIC member was comfortable with the scope as articulated in the agenda papers and remarked that the IFRIC should perform the duties that it has been given. When asked for assistance by constituents, the IFRIC should be helpful and provide the guidance without turning requests away; otherwise constituents will stop asking for assistance. The Chairman concluded that the scope of the Interpretation will be kept short and precise.

The IFRIC agreed that the scope should be limited to accounting for the costs of removal of waste material in a surface mining activity during the production phase.

Discussion at the March 2010 IFRIC Meeting

The IFRIC continued its deliberations on the accounting treatment for stripping costs during the production stage of a mine. In response to a question from the staff, the IFRIC tentatively agreed that by incurring costs to remove the waste, a mining entity has created a benefit in the form of improved access to the mineral ore body and therefore meets the definition of an asset. The IFRIC then discussed whether the asset should be classified as a tangible or intangible asset. One IFRIC member noted that before the IFRIC can conclude on the classification of the asset, it first need to consider whether the asset is an asset in its own right or an addition to an existing asset. After a fairly long discussion, the majority of members supported the view that the benefit created by the stripping costs is an addition to an existing asset.

The IFRIC then discussed whether the stripping costs should be capitalised to the intangible asset (mineral right) in accordance with IAS 38 or to the tangible mining assets (plant and equipment) in accordance with IAS 16. The IFRIC tentatively agreed that the capitalisation of stripping costs should follow the treatment applied by an entity when capitalising other mining costs or assets, and an Interpretation should not to specify whether it is an intangible or tangible asset. As a result the IFRIC agreed not to amend to the scope of the Standard with regards to mineral rights and reserves.

The IFRIC also deliberated how to allocate stripping costs between the current and future periods. It considered two approaches:

• strip ratio approach, which makes use of a strip ratio using the long-term mine plan data; and
• specific identification approach, whereby the costs of a stripping campaign are allocated to the section of the mineral ore that become accessible as a result of the campaign.

One IFRIC member questioned the staff on the practicality and application of the specific identification approach in practice. Staff responded that their research showed that the majority of mining entities are capable of applying this approach as the information is already available as part of the mine plan.

Another IFRIC member did not consider the specific identification approach to be conservative and was opposed to it. However, the majority of the IFRIC members supported the specific identification approach as, in their opinion, the strip ratio approach can lead to a entity's recognising a gain when the stripping costs have been spread over the entire ore body and it is subsequently decided not to mine the entire ore body. When put to a vote, only one member objected to the specific identification approach, with all other members voting in favour of it.

The IFRIC then considered what the appropriate unit of account should be. Without much discussion, the IFRIC tentatively agreed that the unit of account should be the stripping campaign.

Lastly, the IFRIC was asked to consider the subsequent attribution (or amortisation) of the asset. The IFRIC tentatively agreed that regardless of whether an entity capitalises those costs as part of a tangible or intangible asset, the asset should be attributed over ore reserves in a systematic and rational manner. IFRIC further agreed that in drafting the interpretation, the concepts of componentisation included in IAS 16 should be incorporated into the interpretation.

Discussion at the July 2010 IFRIC Meeting

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 focused on the specific question asked.

Disclosure requirements

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.

Transition

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.

Conclusion

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.

August 2010: IFRS Interpretations Committee publishes proposed guidance on surface mining

On 26 August 2010, the IFRS Interpretations Committee published for public comment proposed guidance on the accounting for stripping costs in the production phase of a surface mine.

The draft Interpretation considers the following questions:

• (a) Is the definition of an asset met?
• (b) When should the stripping campaign component be recognised?
• (c) How should the stripping campaign component be measured initially?
• (d) How should the stripping campaign component be measured subsequently?

The IFRS Interpretations Committee has reached the conclusion that costs associated with a ‘stripping campaign’ should be accounted for as an additional component of an existing asset, and that this component should be written down over the reserves that directly benefit from the campaign.

DI/2010/1 Stripping Costs in the Production Phase of a Surface Mine is open for comment until 30 November 2010. It can be accessed via the IASB's website. The IASB's press release is available here (PDF 35k).

Deloitte's IFRS Global Office has published an IFRS in Focus Newsletter – IFRS Interpretations Committee issues Draft Interpretation on Stripping Costs in the Production Phase of a Surface Mine (PDF 74k) explaining the proposals in the draft Interpretation.

Discussion at the January 2011 Interpretations Committee meeting

The IFRS Interpretations Committee received a request in 2009 for guidance on how to account for stripping costs in the production phase of a surface mine. The Committee took the issue onto its agenda in January 2010, and in August 2010 it published for public comment a Draft Interpretation Stripping Costs in the Production Phase of a Surface Mine. The Committee re-deliberated the previous conclusions reached in light of the comment letters received.

The Committee discussed whether to move forward with the project and tentatively agreed that it should continue with developing this interpretation since there appears to be current diversity in practice, and further diversity in practice is anticipated with additional jurisdictions adopting or expected to adopt IFRS.

It was decided that the concept of "stripping campaign" be abandoned because many thought it would be too difficult to define and could lead to a rules-based interpretation. Instead, the Committee agreed that guidance be developed by the staff to assist in applying the existing cost capitalisation principle in IAS 16. The Committee asked the staff to develop this guidance, along with indicators that would assist in determining whether costs are incurred during the development phase or production phase.

The decision was taken by the Committee to leave it up to the judgement of the entity as to whether the stripping cost asset should be accounted for under IAS 16 or IAS 38. In terms of depreciation/amortisation, the Committee tentatively agreed that the specific identification approach is still valid, but that the guidance should not be too prescriptive and should leave room for judgement based on the identification of the type of ore that's likely to be extracted.

The Committee decided that the drafted illustrative example should be removed, prior to finalising the Interpretation. The Committee agreed to delay discussing impairment testing in respect of stripping costs and transition until a later meeting.

Discussion at the March 2011 Interpretations Committee meeting

The Committee continued its re-deliberations. In particular, it discussed the staff's revised principle for capitalising production stripping costs, including proposed guidance on the apportionment of those costs between current (inventory/ expense) and future benefit (defer/ capitalise). In addition, the Committee discussed a revised approach to depreciation and amortisation of the capitalised component.

Principle for capitalisation

The Committee discussed the following proposed principle and related application of the principle:

An entity shall capitalise stripping costs in the production phase of a mine to the extent that the benefit created by the stripping activity is expected to be realised in a future period.
In order to apply this principle, we think that the entity must be able to:

• (a) identify the ore body (or component of the ore body) in the [section of] the mine, for which access has been improved by the stripping activity, and
• (b) measure with reliability the costs of that stripping activity.

Committee members agreed with the principle (it was hard not to, as many observed), but the application proved more controversial. Most agreed that identifying components was critical in this case. However, many were unhappy about the use of 'section' (hence it appearing in [square brackets] above. The sense of the meeting was that they were too open to min-interpretation and introduced a concept that was unhelpful in the context of IAS 16. Retaining the idea of a component (already a feature of IAS 16) was thought more helpful.

A few Committee members were concerned that the principle and application were an open invitation to capitalise 'every scoop of dirt; every bit of rock' and that the revised principle seemed to have lost the feel of an aggressive stripping activity. Hence, these Committee members would want feel more comfortable with a stripping campaign approach. However, there seemed to be consensus that the member's fear cited above was over-stated and that all Committee members thought that the stripping activity within the scope of the Interpretation would always be 'non-routine'.

Basis for measurement

The staff introduced two methodologies for allocating the production stripping costs between the inventory component and the long-term asset component: (i) the 'relative benefit approach', which would be based on the following formula:

or (ii) the 'residual cost approach', which would be based on standard cost theory.

Opinions were mixed. Some saw the relative benefit approach as the 'better measure' because it was a value-based measure and gave a better allocation; while the residual cost basis was easier to apply in a long-life mine and could be seen as more consistent with IAS 16, the standard being interpreted.

After a long and tortuous debate, the Committee agreed that there should be a cost allocation approach. As to which method should be used, the staff and the Committee were split, and the staff will conduct further outreach with constituents.

Depreciation

The Committee agreed with the proposed depreciation principle:

The 'stripping cost asset' shall be depreciated or amortised in a rational and systematic manner over the expected useful life of the ore body (or component of the ore body) in the section of the mine that becomes more accessible as a result of the stripping activity. The units of production method is applied unless another method is more appropriate.

Next steps

The staff will conduct further outreach on both the capitalisation principle and the cost allocation methods before preparing a revised Interpretation to be discussed in May 2011. At that meeting the Committee will also discuss

• Transition considerations;
• Impairment of the stripping cost asset; and
• Whether to retain the illustrative example in the final Interpretation.

The Committee then had a debate about whether an Interpretation was necessary at all, given the likely direction and content. Several Committee members (and the Chairman, rather forcefully) thought that an Interpretation was necessary because there was diversity in practice that would only get worse as more 'mining-heavy' jurisdictions came into the IFRS family and (in particular) because of the scope exception in IAS 16 for the extractive activities. In the end, it was agreed to continue work on the project and reassess at a later stage.

Discussion at the May 2011 Interpretations Committee meeting

The Committee continued its discussion on accounting for production phase stripping costs in the mining industry. Based on the Committee's comments made during the March 2011 meeting, the staff revised the draft interpretation removing the 'stripping campaign' concept and instead describing the recognition of a long term asset as a 'stripping cost asset'. Additionally, the staff replaced the term 'section' from the recognition principle with the term 'component'.

Recognition Principle

The revised recognition principle drafted by the staff reads as follows:

8. An entity shall recognise production stripping costs as part of an asset if, and only if:

• a. It is probable that the future economic benefit associated with the costs will flow to the entity; and
• b. The costs can be measured with reliability.

9. To the extent that the benefit is realised in the current period in the form of inventory produced, the entity shall account for the costs in accordance with the principles of IAS 2 Inventories.
10. To the extent that the benefit is the improved access to ore that is to be realised (mined) in a future period, the entity shall recognise these costs as a long-term asset. This [draft] interpretation refers to this long-term asset as the ‘stripping cost asset’.

• a. Identify the component of the ore body for which access has been improved, and
• b. Measure the costs relating to the improved access to that component with reliability.

12. If the entity cannot identify the component of the ore body for which access has been improved, or cannot measure the costs relating to the improved access to that component with reliability, then the entity shall recognise these costs in profit or loss.

A few of the Committee members expressed various concerns over the staff’s proposed use of the term ‘component’. One Committee member noted in particular that small mining operations may have difficulty in identifying a component and could interpret that otherwise eligible stripping costs would not be eligible for capitalisation. Another suggested providing a more structured definition of a component so that the guidance would not be applied incorrectly. Other Committee members had concern that providing a more specific definition may establish a brightline on what constitutes a component.

Some Committee members also felt that the guidance in paragraphs 8 and 11 above were repetitive and could be streamlined into a single paragraph.

The Committee generally supported the principle drafted by the staff. However, the staff will consider the comments the Committee had with how the principle could be better clarified.

The staff also asked the Committee whether they believed that any recognition ‘trigger’ should be included in the final Interpretation. The Committee agreed that a recognition trigger was not necessary.

Method of Allocating Costs between Current and Future Periods

The Committee continued their discussions from the March 2011 meeting on the method for allocating stripping costs between current and future benefits. Specifically, two approaches were discussed the residual cost approach and the relative benefit approach. The residual cost approach would calculate the standard cost of removing ore in a section of the mine while the relative benefit approach involves allocating the production stripping costs for a section of the mine on a relative benefit basis according to the sales value of the extracted ore. The staff provided a numerical example of the application of each of these two approaches which provided significantly different results.

The staff recommended the draft Interpretation require use of the residual cost approach. However, several of the Committee members had concerns with requiring the use of a specific approach. Some of the Committee members also noted that the relative benefit approach could be applied using inputs other than future sales prices, such as based on quantities extracted (the use of highly subjective information such as future market prices was an area of concern for certain Committee members in using this approach). Another Committee member suggested that the relative benefit approach could also be applied by using current market values rather than estimating future market conditions. Because no consensus could be reached, the Committee asked the staff to revise the allocation guidance based on the feedback received from the Committee.

The staff brought back to the Committee revised guidance on allocating cost between current and future benefits. The revised staff proposal included the following:

Where the costs of the stripping cost asset and the inventory produced are not separately identifiable, the entity shall allocate the production stripping costs between the inventory produced and the stripping cost asset on a rational and consistent basis.

The entity shall use an allocation basis that is based on a relevant production metric, calculated for an identified component of the mine, that can be used as a benchmark to identify the extent to which additional activity of creating a future benefit has taken place. Examples of such metrics may include:

• a. cost of inventory produced compared with expected cost;
• b. volume of waste extracted compared with expected volume, for a given volume of ore production; and
• c. mineral content of the ore extracted compared with expected mineral content to be extracted.

The Committee generally supported the direction the staff was headed with the revised guidance, although a few members still had some concerns with certain aspects of the drafting. Only one Committee member had reservations with the concepts in the guidance feeling it was still too prescriptive and preferred that only the first paragraph be included. The staff clarified for the Committee that the guidance was drafted in such a way that the use of sales based metrics were intentionally omitted and that this would be noted in the basis for conclusions.

Impairment

Some of the comment letter respondents to the draft Interpretation suggested the Committee provide guidance of how a component is to be impaired. However, the staff recommended that the consensus not specifically address impairment. Instead, the basis for conclusions would note that impairment would be considered under IAS 36 Impairment of Assets. The Committee agreed with the staff recommendation.

Transition

The draft Interpretation proposed that the provisions would be effective for production stripping costs incurred on or after the beginning of the earliest period presented. Comment letter respondents broadly agreed with the proposed transition requirements. The Committee reaffirmed their previous decision that the provisions in the Interpretation would be effective for production stripping costs incurred on or after the beginning of the earliest period presented.

Existing Stripping Cost Assets

Some entities may have recognised stripping cost assets that cannot be directly associated with an identifiable section of the ore body and therefore not eligible for capitalisation under the Interpretation. The staff recommended that those stripping cost assets no longer eligible for capitalisation would be written off through opening retained earnings upon initial application of the Interpretation. The Committee agreed with the staff recommendation.

Illustrative Example

Comment letter respondents did not support including the illustrative example in the draft Interpretation in the final Interpretation. Therefore the staff recommended not including the illustrative example in the final Interpretation and the Committee agreed with the staff recommendation.

Next Steps

The Committee discussed whether the decisions during the re-deliberations of the draft Interpretation would require re-exposure. A few of the Committee members mentioned they would like to see an analysis of the changes made between the draft Interpretation and the final Interpretation to better assess whether re-exposure would be required. The staff mentioned they would draft the language for the final Interpretation and prepare the analysis and distribute to the Committee toward the end of May. The Committee may then schedule an interim teleconference meeting in early June to determine whether re-exposure is required. If they determine that re-exposure is not required, the Committee would then finalise the vote to approve the Interpretation. Only one Committee member expressed reservation that she may dissent to the final Interpretation.

Discussion at the July 2011 Interpretations Committee meeting

The Committee discussed three other issues which came to the staff's attention while drafting the near final Interpretation. Firstly, the Committee tentatively agreed to amend paragraph 17 to acknowledge the cost or revaluation alternatives for subsequent measurement, according to the valuation model used for the entity's mining assets. Secondly, the Committee tentatively agreed to remove paragraphs 12 and 13 as paragraph 12 appeared to state the obvious and paragraph 13 could be read to imply that the stripping activity asset should be derecognised once the stripping activity is completed – which was not what was intended. Thirdly, the Committee tentatively agreed to propose to the Board that the effective date for the Interpretation should be 1 January 2013 with earlier application permitted.

The Committee tentatively agreed not to re-expose the near final Interpretation but requested the staff to make some changes to the guidance, including changing the wording to require rather than to suggest that the entity use an allocation basis that is based on a relevant production measure as a basis to allocate the production stripping costs between the inventory produced and the stripping activity asset.

10 August 2011: Near Final Draft of IFRIC 20 published

A near final draft of IFRIC Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine has been posted to the IASB's website.

The Interpretation addresses the following issues:

• recognition of production stripping costs as an asset;
• initial measurement of the stripping activity asset; and
• subsequent measurement of the stripping activity asset.

The near final draft (PDF 226k, link to IASB website) is available to eIFRS subscribers only.
 

Discussion at September 2011 IASB Meeting

IASB approval of IFRIC 20

IFRIC 20 provides guidance on the accounting for the costs of stripping activity (waste removal) in the production phase of surface mining when two benefits accrue to the entity from the stripping activity: usable ore that can be used to produce inventory (inventory asset) and improved access to further quantities of material (stripping activity asset) that will be mined in future periods.

The Board suggested some editorial changes in relation to clarification of the definition of a component and that IFRIC 20 covers ore and other types of minerals obtained from surface mining. The Board tentatively decided that the Interpretation did not need to be re-exposed and approved IFRIC 20, subject to its final review of drafting changes.

The Board also tentatively decided that an entity should apply IFRIC 20 for annual periods beginning on or after 1 January 2013 with earlier application permitted. IFRIC 20 will be applied to costs incurred on or after the beginning of the earliest period presented, and provides transition guidance for pre-existing asset balances that resulted from stripping activity prior to that date.