Cover paper (Agenda Paper 19)

At the September 2021 meeting, the IASB decided that the scope and objectives of its research project Extractive Activities should be to explore two aspects of IFRS 6:

• Whether to develop requirements or guidance to improve the information an entity discloses about its E&E expenditure and activities to provide more useful information to primary users of financial statements
• Removing the temporary nature of the exemption in IFRS 6 from the application of IAS 8:11-12

In the September 2021 meeting the IASB also decided:

• Not to explore changing the recognition and measurement requirements for E&E expenditure
• Not address matters that are outside the scope of IFRS 6 as part of a project on extractive activities
• Not develop requirements for the disclosure and use of reserve and resource information in financial statements as part of a project on extractive activities

In this meeting the staff asked the IASB to make decisions about:

• Whether to develop requirements or guidance to improve the information an entity discloses about its exploration and evaluation (E&E) expenditure and activities to provide more useful information to users
• Whether to remove the temporary nature of the exemption in IFRS 6

This paper was not discussed.

Analysis of disclosure suggestions (Agenda Paper 19A)

This paper set out the staff’s analysis and recommendations on whether the IASB should develop requirements or guidance to improve the information an entity discloses about its exploration and evaluation (E&E) expenditure and activities.

In September 2022, the IASB decided to explore three aspects of information about E&E expenditure and activities with stakeholders:

• Whether and how entities could disclose better information about the different accounting policies entities apply to E&E expenditure specifically in relation to:
  • Unit of account
  • Nature and type of E&E expenditure
  • When capitalisation starts and stops
• Whether information about cumulative E&E expenditure could be disclosed to help compare entities that apply different accounting policies for E&E expenditure
• Whether information about the risks and uncertainties associated with E&E expenditure and activities could be disclosed

In developing these disclosure suggestions, the staff reviewed:

• Disclosure-related feedback from research conducted between 2018–2021 with stakeholders
• Relevant academic literature
• Relevant jurisdictional requirements and other proposals for providing information about E&E expenditure and activities
• A sample of entities’ annual filings to understand what information entities disclose about E&E expenditure and activities

The staff conducted outreach to discuss the disclosure suggestions. The feedback from these outreach activities was discussed with the IASB at its July 2023 meeting.

The analysis of the disclosure suggestions was summarised in the paper.

Staff recommendation

As a result of the staff’s analysis set out in the paper, the staff recommended that the IASB should not pursue:

• Developing requirements or guidance to disclose information to help understand how entities account for E&E expenditure
• Developing requirements or guidance to disclose information to help compare entities with different accounting policies for E&E expenditure
• Developing requirements or guidance to disclose information to help understand the risks and uncertainties of entities’ E&E activities
• Other suggestions to improve information about E&E expenditure and activities

IASB discussion

A majority of the IASB members indicated that there did not appear to be compelling evidence, based on feedback, to develop requirements or guidance to disclose further information relating to the accounting, diversity, comparability for E&E expenditure, and agreed with the four staff recommendations in Agenda Paper 19A.

One IASB member disagreed with the first staff recommendation as it is thought that the disclosure can be achieved at low cost and would demonstrate awareness for the lack of transparency in this area and highlight the diversity that exists. There was also a suggestion to incorporate educational material and/or illustrative examples to improve accounting policy disclosure in relation to the materiality practice statement and the aggregation and disaggregation that will arise from the PFS project.

Several of the IASB members agreed with all staff recommendations and their comments included:

• Materiality of E&E transactions: The feedback from both users and preparers mentioned that E&E expenses are mostly not material transactions and if material the disclosure is likely to be captured by IAS 1. It was whether there was a problem to be solved by additional guidance and disclosures.
• Cost of disclosures: Most IASB members acknowledged that according to the feedback given by users, additional disclosures are not needed and would lead to further costs, which from a cost-benefit angle, cannot be substantiated.
• Lack of compelling evidence: Most IASB members mentioned that the detail of the work conducted, and the evidence gathered clearly demonstrates why there is no compelling evidence to pursue the additional disclosures and guidance.

IASB decision

12 of the 13 IASB members present agreed with the staff recommendation.

Removing the temporary status of IFRS 6 (Agenda Paper 19B)

This paper this paper set out the staff’s analysis and recommendation of whether the IASB should remove the temporary nature of the exemption in IFRS 6 from the application of paragraphs IAS 8:11-12. The staff also presented their analysis and recommendation of whether the IASB should delete IFRS 6:13-14 on which the IASB had requested the staff to research as part of the work on whether to remove the temporary status of IFRS 6.

The staff recommended that the IASB:

• Conclude that the work done in publishing the Discussion Paper Extractive Activities in April 2010 and in this Extractive Activities research project constitutes the comprehensive review of the accounting for extractive activities envisaged by the IASB when issuing IFRS 6
• Remove the temporary nature of the exemption in IFRS 6 from the application of IAS 8:11-12
• Retain IFRS 6:13-14 which provide specific requirements for when an entity changes their accounting policy for E&E expenditure
• Amend IFRS 6 to remove the temporary nature of the exemption in IFRS 6 from the application of IAS 8:11-12 as part of the next annual improvements cycle

IASB discussion

Based on the staff recommendations in Agenda Paper 19B, IASB members voted and commented as follows:

• All IASB members voted in agreement on the first staff recommendation
• All IASB members also agreed with the second staff recommendation, and mentioned that leaving the temporary nature of the exemption in IFRS 6 creates an expectation that something will be done and removing it suggests it is complete
• All IASB members agreed with the third staff recommendation. Most IASB members mentioned that removing the temporary nature of the exemption in IFRS 6 calls for the retention of IFRS 6:13-14
• All IASB members agreed with the fourth recommendation. A number of IASB members found difficulty in agreeing whether the amendment is an “annual improvement” as per the Due Process Handbook. However, several IASB members agreed that the amendment should be included in the annual improvements cycle, either through interpretation of paragraph 36 of the Handbook, interpretation of paragraphs 6.10 and 6.11 of the Handbook or through the fact that the outcome of the above decisions will not have an impact

A majority of IASB members were in favour of the project summary which explains why IASB members decided not to act. However, they would prefer that the project summary is clear and concise in terms of the conclusions and rationale around the decisions. IASB members thought it is useful to capture within the project summary a brief mention of some of the benefits of the educational materials that were suggested for improvements to disclosure. One of the IASB members drew attention to the fact that the conclusions were reached after 20 years of work and that background should be reflected in the summary. The IASB considered this and decided that the history will be incorporated briefly into the summary.

IASB decision

All IASB members present agreed with the staff recommendations.