Extractive activities

Date recorded:

Cover Paper (Agenda Paper 19)


In 2010, the IASB published a Discussion Paper (the DP) about financial reporting issues associated with exploring for and finding minerals, oil and natural gas deposits, developing and extracting the minerals, oil and natural gas.

In this meeting, the staff provided an overview of how changes to IFRS Standards and other documents, and other developments since the DP was published may affect the issues and conclusions in the DP.

There were no staff recommendations.

Scope and approach (Agenda Paper 19A)

Feedback from recent outreach, consistent with the feedback on the DP, highlighted that there are mixed views about whether the Board should:

  • a) develop a disclosure-only standard for extractive activities;
  • b) improve the recognition, measurement and disclosure requirements of IFRS 6;
  • c) withdraw IFRS 6 and include extractive activities in a project that considers the accounting for intangible assets more generally;
  • d) develop guidance on how an entity with extractive activities can apply existing IFRS Standards;
  • e) develop an industry-specific standard which would scope in the accounting for all extractive activities; or
  • f) maintain IFRS 6 and do nothing.

Although mixed, staff noted that most of the recent feedback indicates limited appetite for a project with a similar scope to that of the DP. Many of the stakeholders suggested focusing on prioritising:

  • a) improving existing disclosure objectives and requirements; and
  • b) developing additional disclosure requirements for both IFRS and non-IFRS information (e.g. reserve and resource reporting) related to extractive activities in the financial statements.
  • and resource reporting) related to extractive activities in the financial statements.

Board discussion

Board members raised concerns about the current practice of using US GAAP guidance (as permitted in IFRS 6) to account for the exploration and evaluation of mineral resources. Board members would prefer to have a sound IFRS basis to account for those to ensure compliance with the Conceptual Framework.

With regard to the demand for disclosure, Board members said that disclosures alone might not solve the issues and that the Board would also have to look at recognition and measurement issues. One Board member highlighted three areas of focus, the interaction of accounting for extractive activities with IAS 38, general accounting issues like impairment and provisions, and non-financial disclosures of resources and reserves. Other disclosures would accompany the first two areas of focus. Updating IFRS 6 only for disclosures might not solve the problem as the demand for disclosures was beyond those for evaluation and exploration.

Some Board members ruled out the development of an industry-specific standard and promoted an activity-specific approach (similar to IFRS 17). With regard to outreach feedback on risk sharing, the staff said that the Board have a pipeline project on variable and contingent consideration, and risk sharing would be within its scope.

Definition of reserves and resources (Agenda Paper 19B)

Staff observe that improvements have been made to the reserve and resource classification systems that were considered in the DP, although these improvements do not affect the DP’s proposals. However, the staff think that the revised Conceptual Framework’s guidance about the scope of general purpose financial reporting may affect the proposals.

Board discussion

One Board member said that it was not necessarily the responsibility of the Board to provide information to users on reserves and resources, as users might have developed systems themselves. There was some discussion about what regulators around the world already require. The staff highlighted that that information is not consistent around the world and the quality of that information might be less than what is required for financial reporting purposes. One Board member asked if the staff could provide analysis on this at a future meeting.

Asset recognition and unit of account (Agenda Paper 19C)

Applying the 2010 Conceptual Framework, some respondents to the DP observed that

  • a) enhancements to legal rights arising from subsequent exploration and evaluation activities did not meet the definition of an asset; and
  • b) additional guidance was needed to help entities determine an appropriate ‘unit of account’ for recognition of mineral or oil and gas properties.

Staff think subsequent exploration and evaluation activities could meet the definition of an asset in the revised Conceptual Framework. However, recognising (the cost of) such activities as assets is appropriate only if it provides primary users with useful information.

Staff think that although the proposed unit of account in the DP is consistent with the revised Conceptual Framework, other units of account may be appropriate and might provide users of financial statements with more useful information. Therefore, the selection of an appropriate unit of account may need to be explored further.

Board discussion

Board members discussed impairment issues arising in relation to subsequent exploration and evaluation activities and what could be an appropriate accounting treatment. One Board member suggested to use the existing criteria in IAS 38 with regard to research and development to determine capitalisation, as subsequent evaluation activities were very similar to those. There was also some discussion around how to determine what part of the capitalised cost is additional legal rights and what part is information obtained from subsequent exploration.

Asset measurement and impairment (Agenda Paper 19D)

Staff have considered the effect of new and amended IFRS Standards issued since 2010 together with the revised Conceptual Framework, on the considerations and proposals about asset measurement and impairment in the DP.

The DP focused primarily on historical cost and fair value measurement bases and proposed that historical cost be applied as the measurement basis. The revised Conceptual Framework might lead the Board to confirm that historic cost is the best measurement basis, or it could decide that a different measurement basis, or combination of bases, is more appropriate.

The DP considered using revenue as a basis for depreciation or amortisation. A recent amendment to IAS 16 means that is no longer likely to be appropriate.

Board discussion

A Board member highlighted that impairment might be difficult when prices are volatile (like oil, for example). The Vice-Chair shared this concern and said that the Board would have to be careful in addressing it.

Disclosure (Agenda Paper 19E)

The Boards has clarified how materiality is applied to disclosure requirements (amendments to IAS 1 and a Practice Statement) which means specific items proposed in the DP would not require disclosure if they are not material.  

Some of the disclosure objectives and specific disclosure proposals in the DP may no longer be appropriate because:

  • a) the proposals for disclosure objectives and disclosure of specific information might not be consistent with the revised Conceptual Framework;
  • b) the way in which disclosure objectives are written has developed since 2010 and the Board’s work in the Disclosure Initiative could affect the development and drafting of disclosure objectives and requirements; and
  • c) the disclosure needs of stakeholders may have changed since 2010.

Board discussion

One Board member noted that information required by disclosures should be auditable, as otherwise the information might not be useful to the users of financial statements. Other Board members advised to exchange views with other project teams, for example the teams of Disclosure Initiative—Targeted Standards-level Review of Disclosures and Primary Financial Statements.

Publish What You Pay (Agenda Paper 19F)

In the DP, the project team considered the disclosure proposals put forward by the Publish What You Pay (PWYP) coalition of non-governmental organisations. The PWYP coalition seeks to improve the accountability of governments of resource-rich developing countries for the management of revenues received from mining or oil and gas entities. The coalition proposed that entities undertaking extractive activities be required to disclose, on a country-by-country basis, in their financial reports, payments (cash or in kind) made to governments and information such as reserve and production quantities and production revenues and development and production costs.

The staff observe that some jurisdictions have introduced these requirements at the statutory level.  

Board discussion

One Board member said that this was an emerging issue at the time the DP was issued, however, it has meanwhile been addressed by disclosure requirements and hence should not be a part of the project. Another Board member agreed and said that moral issues should not be brought into IFRS Standards.  

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