Cover paper (Agenda Paper 19)

The objective of this meeting was to provide the IASB with a summary of feedback on its Extractive Activities research project. The feedback related to suggestions to improve disclosures about an entity’s exploration and evaluation (E&E) expenditure and activities that the IASB is exploring.

Summary of feedback—Information to help understand how entities account for E&E expenditure (Agenda Paper 19A)

This paper summarised feedback from the staff research on suggestions to improve information about how entities account for E&E expenditure.

The staff research identified three features of accounting policies for E&E expenditure that are sometimes unclear and could be improved: unit of account; E&E expenditure; and when capitalisation starts and stops.

The staff asked stakeholders for feedback about whether:

• Users are interested in better understanding how entities account for E&E expenditure
• Sufficient information is disclosed about entities’ accounting policies for E&E expenditure
• Understanding the differences in financial statements of entities applying different accounting policies for E&E expenditure illustrated in the materials would be helpful
• There are any concerns with providing more information about the details of accounting for E&E expenditure

The feedback received in response to these questions is summarised in the paper.

IASB discussion

A majority of IASB members indicated that there did not appear to be compelling evidence, based on the feedback, to continue with standard-setting in this area. There appears to be uncertainty around whether additional disclosure will provide useful information for users and, where it would, this appears to be for a relatively small subset of entities.

Some IASB members asked for additional analysis including on whether the Primary Financial Statements project may require disclosure that could improve transparency around E&E expenditure.

It was noted by the staff that there was support from some stakeholders, especially regulators, and one IASB member asked the staff to provide additional detail on why it is that these stakeholders support additional information.

Some IASB members provided additional insight on why the E&E expenditure information may not be that useful to users including the wide range of entities it may impact from junior miners, where cashflow metrics are important, to major entities where the information is unlikely to be material.

Summary of feedback—Information to help compare entities with different accounting policies (Agenda Paper 19B)

This paper summarised feedback from the staff research on suggestions to improve information to help users of financial statements compare entities with different accounting policies for E&E expenditure.

One of the fundamental differences in accounting policies entities apply to E&E expenditure is whether an entity capitalises E&E expenditure as an E&E asset (a capitalisation policy) or whether an entity expenses its E&E expenditure in the period it incurs that expenditure (an expense policy). Consequently, the statements of financial position and statements of comprehensive income of entities applying these two broad types of accounting policy for E&E expenditure could significantly differ.

In its September 2022 meeting the IASB discussed a suggestion to require an entity to disclose cumulative spend information—information about cumulative E&E expenditure incurred by an entity on its current E&E activities in aggregate. Such information could help users track E&E expenditure on a cumulative basis and compare entities with different accounting policies.

The staff provided stakeholders with an example illustrating the difficulty of determining the cumulative spend on an entity’s current exploration projects when the entity follows an expense policy. The staff asked for feedback about:

• Whether cumulative spend information would be useful
• How users would use that information
• What challenges there would be to preparers in disclosing that information
• Whether an entity that capitalises most, but not all, of its E&E expenditure should also disclose cumulative spend information

The feedback received in response to these questions was summarised in the paper. The discussion on this paper is summarised under Agenda Paper 19D.

Summary of feedback—Information to help understand the risks and uncertainties of entities’ E&E activities (Agenda Paper 19C)

This paper summarised feedback from the staff research on suggestions to improve information about the risks and uncertainties of E&E expenditure and activities.

The staff met with stakeholders and explained why risk and uncertainty information might be helpful. They also provided examples of the type of information an entity might disclose. For example, risk and uncertainty information could help users understand:

• Level of uncertainty—stage of activities, whether the activities are on a brownfield site or a greenfield site
• Operational risks—challenges due to the nature of the activities, type of geology, remoteness of area
• Political and regulatory risks—operating in a particular geography, legislative uncertainties, title risk

The staff also explored whether entities should be required to disclose a breakdown of annual E&E expenditure (if expensed) or E&E assets (if capitalised) by major project with some narrative information about each project’s risks and uncertainties.

The staff asked stakeholders for feedback about:

• Whether users would find this information useful and what they would use the information for
• What concerns preparers would have in disclosing this information
• Whether this information should be disclosed within financial statements
• Whether this information is important regardless of how an entity accounts for E&E expenditure
• What risks and uncertainties should be disclosed
• Whether this information is already being disclosed and if so, where
• How this information should be aggregated or disaggregated
• Whether it would also be useful, and feasible, to disaggregate E&E expenditure or E&E assets

The feedback received in response to these questions was summarised in the paper. The discussion on this paper is summarised under Agenda Paper 19D.

Summary of feedback—Other information about E&E expenditure and activities (Agenda Paper 19D)

The staff asked stakeholders for suggestions to improve information about E&E expenditure and activities in addition to the three suggestions the staff discussed with stakeholders as summarised in Agenda Papers 19A-19C to this meeting. This paper summarised that feedback.

IASB discussion

Agenda Papers 19B-19D were discussed together.

A number of IASB members touched on the following areas in their comments:

• Financial statements boundary: It was suggested, based on feedback, that a number of the proposed disclosures, including risks and uncertainties, would be more appropriate outside the financial statements and within management commentary. It was also noted that often, this information is already provided within commentary either voluntarily or in line with regulatory requirements
• ‘Nice to haves’: Again, based on feedback, it seemed as though the suggestions for additional information would be useful for users but were not seen as must have information. Additionally, it was not clear to some IASB members whether there was a problem that needed to be solved by the additional disclosures
• Cost of disclosure: One IASB member identified that the cost of the additional disclosure would be likely to fall disproportionately on smaller entities where the focus of the users would ordinarily be on cash flow metrics

The next steps are for the project direction to be discussed and decided on in the September 2023 IASB meeting.