The Extractive Activities project team discussed progress made towards producing a Discussion Paper on key features of an accounting model for certain aspects of minerals and oil and gas reserves and resources. This discussion focused on asset definition, recognition and unit of account issues.

Asset definition

The project team noted that their proposed approach was to focus on the definition of an asset in the current IASB Framework (and, to a lesser extent, current activities on the revised asset definition as a result of the Framework project), rather than on the traditional approach to asset recognition in this sector, phases of an extractive project.

The project ream had identified two types of asset and items that might be within those broad categories:

Intangible assets: including legal instruments/approvals necessary for undertaking 'upstream' extractive activities (for example, mineral rights, development permits, etc); and information (such as geological data confirming or not the presence of mineral resources in a particular area).

Tangible assets: including mineral, oil and gas deposits and property, plant and equipment used to access and extract those resources.

The Board expressed broad agreement with the approach. However, there was a great deal of detailed discussion about 'information' intangibles and the proposed 'flip' from intangible (the right to exploit) to tangible (the resources themselves).

Board members noted that information by itself was unlikely to be an asset-it could only enhance the value of an asset.

Others disagreed, noting that information (e.g. the results of geological surveys) could be sold. In response, Board members noted that information may be an asset, but without the right to exploit it, it was probably not worth very much. There appeared to be agreement that in this context legal rights were precedential.

The project team presented two views of when reserves and resources would meet the definition of an asset. One view would require all the rights (including permits, licences, and approvals) necessary for development and production be in place before a mineral resource could be recognised on the balance sheet. The project team noted that this took a narrow view of control of the asset. The alternative view would require the entity to have the legal rights to the minerals sufficient to allow then to extract those resources and to deny access to them by others; to have received approvals that give the entity a reasonable expectation that it will be able to exercise those rights; and has an unrestricted right to apply for any outstanding rights or approvals that are ancillary in nature and expected to be received in a timely manner. This second view is seen as consistent with 'rational economic behaviour of entities and financial statement users' and presumably reflects significant elements of current practice.

The Board seemed to accept that both views were possible at this stage, although some did seem concerned about the cliff effects of the proposed recognition.

The discussion moved on to when an asset should be recognised. Again, two views were presented: one a narrow view based on an assessment of whether the exploration and evaluation activities have been 'successful'. The alternative position views economic benefits more broadly to include the potential benefit to the entity if it were to sell the property. However, one Board member suggested that recognising and measuring the reserves and resources as a separate (tangible) asset was not necessary. In his view, the one thing that remains constant is the right to exploit. Once minerals have been discovered, the right becomes more valuable. The communication to users might be clearer if it were the mineral rights that were re-measured rather than the resources. This interesting point was not explored further, but may be developed by the staff. The Board then discussed unit of account issues. The Board seemed to have general agreement with the project team's conclusions:

• (a) infrastructure assets that generate largely independent cashflows are excluded from the unit of account - in other words, the unit of account can be no greater than a cash-generating unit, as determined in accordance with IAS 36;
• (b) infrastructure assets that are physically and commercially separable are excluded from the unit of account - in other words, this applies to assets which could realistically be moved to other operations and the movement of these assets could be economically justified. In contrast, assets that are commercially inseparable include assets that, although being physically separable, may be more economic to abandon or decommission than to physically move them to a new location. Examples might include assets that are dedicated to the property because either:
  • (i) they are not readily movable (e.g. offices, concentrator, dedicated rail facilities etc); and/or
  • (ii) are specialised so there is no other economic use for the assets; and
• (c) infrastructure assets that have different useful lives from the reserves are excluded from the unit of account.