Cover Paper (Agenda Paper 19)

Following the feedback from the 2015 Agenda Consultation, the Board decided to add a new research project on extractive activities to the research pipeline, activated in 2018. After a number of meetings, the Board asked the staff to perform research activities in key jurisdictions in order to be able to determine:

• (a) what problems, if any, entities with extractive activities have applying IFRS Standards; and
• (b) whether the primary users of financial statements of entities with extractive activities are obtaining all the information they need for these entities.

Staff have now completed those additional research activities requested by the Board. The staff will present or have already presented the findings from the following research activities, either this month or in previous months:

• (a) feedback about the extractives industry from other jurisdictions and stakeholder groups;
• (b) accounting for exploration and evaluation expenditure applying IAS 16 and IAS 38;
• (c) a literature review on accounting for exploration and evaluation expenditure and reserve and resource disclosures;
• (d) reserve and resource reporting requirements of jurisdictions which have significant extractive activities;
• (e) diversity of accounting policies applied to exploration and evaluation expenditure; and
• (f) an explanation of extractive activities in the minerals and oil and gas industries, together with the common accounting challenges for those extractive activities and reasons for those challenges.

The Board will be asked to make a decision about whether to commence a project to replace or amend IFRS 6 at a future meeting.

Education session (Agenda Paper 19A)

The purpose of the session was to provide Board members with a summary of:

• the life-cycle of a minerals and oil and gas property;
• the activities that are performed in the different phases of that life-cycle; and
• the financial reporting challenges associated with those different phases.

The aim was to help Board members:

• understand more of the context behind some of the financial reporting challenges faced by entities in the extractive industries; and
• decide at a future Board meeting whether the scope of this project should cover any of the challenges that some stakeholders suggest should be explored by the Board.

Given this session is educational in nature, no decisions were expected from the Board.

Board discussion

Exploration phase

Board members have reiterated the concern about the diversity in accounting practices within the same industry for capitalisation of exploration expenditures. Board members have also commented that the exploration phase is the phase with more accounting practice diversity among the areas discussed during the presentation.

A Board member expressed concern about how the specificities of different accounting choices within different industries will be treated in a future development of an accounting standard. Main correlated industries commented were pharmaceutical, oil and gas, and mining.

Development, decommissioning and disclosure

Board members commented on the development phase and decommissioning. The main issues of these phases have been discussed without further challenges.

A Board member requested more detail about the necessity to extend the disclosure requirements.

Next stage/challenges

A Board member commented on the necessity to summarise the accounting issues that will determine the scope of future study. In their view, this summarisation is key to enable the Board to understand the accounting issues that stakeholders expect them to solve in the future. The resolution of some of these issues mentioned during the presentation might not be of interest to stakeholders, even with diversity in practice.

A Board member challenged if the absence of accounting guidance for some issues is related to the necessity of further development in the accounting standards, or the result of complex arrangement structures within the oil and gas and mining industries. The Board providing a solution on some of these issues will not reduce the complexity of them. Some Board Members expressed the view that a solution might not reduce the level of judgement required to determine the accounting policy for those transactions.

Another Board member commented on the necessity to categorise the issues in two buckets: One related to more generic challenges that can be sorted across different industries without considering the industry specificities. The other would contain issues where the solution forone industry might affect a correlated issue on another industry.

The Board must determine how the solutions will be formalised to support stakeholders.