Accounting policies developed applying IFRS 6 (Agenda Paper 19A)

The staff presented during the meeting the research findings on the diversity of accounting policies applied to exploration and evaluation expenditure within the scope of IFRS 6.

According to the agenda paper, the staff’s research indicates that the source of this diversity is primarily due to the extent to which an entity decides to recognise exploration and evaluation expenditure incurred during the reporting period as an asset and the unit of account that an entity decides to apply to its exploration and evaluation expenditure asset.

Most of the entities in the sample use 'area of interest' accounting.  The ‘full cost’ and successful efforts methods are the most common accounting policies for oil and gas companies not applying ‘area of interest’ accounting.

The staff has observed numerous terms and units of account in practice.

The staff has also obtained feedback from stakeholders. The stakeholders do not identify the diversity in accounting policies of extractive companies as a primary concern. However, these users said the financial statements of entities with extractive activities lack information about climate change, environmental issues and obligations, the economic life of the mineral or oil and gas property and thorough information about its reserves and resources.

The Board was asked to make a decision about whether to commence a project to replace or amend IFRS 6 at a future meeting, based on the information that has been presented to the Board in past meetings.

Board discussion

Board members have commented on the diversity of accounting practices found within the extractive industry and the necessity of a more detailed disclosure of the accounting policy chosen by some samples analysed by the staff. Board members mentioned the difficulties in standardising the accounting policy options through amendments to IFRS 6 and commented on past challenges in a similar project for the insurance industry.

Board members also mentioned that a potential solution could be to amend the IFRS 6 by requiring further disclosures. A Board Member suggested that the staff have to increase engagement with financial statement users for a better understanding of the disclosures that they would consider relevant.