Extractive Activities Research Project

Date recorded:

The Board held an education session on their extractive activities research project. Representatives from the research team presented the outcomes of the research on whether fair value is a suitable measurement and/or disclosure objective for extractive activities.

The representatives focused on agenda paper 4D (available from the IASB Website). The paper considered whether fair value as either the measurement or the disclosure objective for extractive activities would satisfy the qualitative characteristics to provide useful financial information. The research team reported that users had indicated more support for disclosure of inputs necessary for them to prepare their own valuations rather than the reporting of fair values. Based on a lack of support from users for fair value as the measurement objective, combined with difficulties in obtaining verifiable estimates of fair value and significant compliance costs incurred to estimate this value, the research team expressed concern with requiring fair value as a measurement objective.

The Board debated which difficulties the extractive industries may incur when measuring fair values of mineral reserves and resources, and how this would be different from other industries. The alternative to fair value would be to continue to measure mineral reserves and resources at historical cost. Board members generally said that they did not like the alternative, and they seemed confused about why users would be more interested in knowing how much is paid for a resource or reserve compared to what it is worth. The Board noted that it did not see the benefit of going forward with this project if it were to be based on historical cost as a measurement objective.

The Board asked the research team to go back and further explore which difficulties arise on fair value measurement of resources and reserves and bring this back in the future.

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