Extractive activities

Date recorded:

Cover Paper (Agenda Paper 19)

The Extractive Activities research project was activated in 2018 with the aim of gathering evidence to help decide whether to start a project to develop proposals that would amend or replace IFRS 6. At its meeting in September 2021, the IASB decided on the project objectives and scope. This project was last discussed in March 2022 when the IASB agreed a project plan with 3 phases as follows:

  • Phase I – desktop review of disclosure-related feedback received since 2018
  • Phase II – limited outreach with users, preparers and auditors
  • Phase III – limited outreach with national standard setters.

The purpose of this session was to report the results of Phase I and to update the IASB on what the staff proposed to explore further in Phases II and III.

The IASB was not asked to make any decisions during this session.

Disclosure feedback summary (Agenda Paper 19A)

This paper summarised the staff review of disclosure-related stakeholder feedback from research carried out between 2018 and 2021, relevant academic literature and relevant jurisdictional requirements.

Annual filings review (Agenda Paper 19B)

This paper summarised the staff review of a sample of entities’ annual filings to understand what information entities provide about exploration and evaluation (E&E) expenditure and activities.

Suggestions for further research (Agenda Paper 19C)

The final paper set out the staff analysis of the findings in Agenda Papers 19A and 19B and considered which aspects of information about E&E expenditure and activities to explore further in Phases II and III. The staff suggested to further research:

  • Information to help understand the accounting for E&E expenditure
  • Information to help compare entities with different accounting policies for E&E expenditure
  • Information to help understand the risks and uncertainties of E&E activities

IASB discussion

All agenda papers were discussed together.

Overall, IASB members expressed support for the proposed direction of the project and for the three suggested areas for further research. One IASB member noted that it was very important to communicate clearly to stakeholders that these are the only topics that will be taken forward in this project, and that other potential areas identified have now been scoped out.

One IASB member added that there are two different elements at play: the identification of useful information which is not yet required to be disclosed; and disclosures that are currently required which are not being provided. Some IASB members noted that it is important to investigate this further and perform outreach to explore the reasons why many entities, including large entities, are not providing the required disclosures in order to identify whether the current requirements are in need of improvement.

In relation to the first research topic, whether and how entities can disclose better information to help understand the accounting for E&E expenditure, a number of IASB members voiced their agreement with the three proposed areas of focus being unit of account, E&E expenditure and when capitalisation starts and stops.

One IASB member opposed the use of “whether and how”, noting that the work that has taken place so far has highlighted that there is a deficiency in the accounting policy information being provided, so the reference to “whether” should be withdrawn. Some IASB members disagreed however, noting that users do not appear to be asking for additional information and as such, it is important to explore users’ needs to ensure additional disclosures will be useful.

One IASB member commented that it would be interesting to explore further how much linkage users would like to see between the front half and back half of the financial statements. Some users are happy with the level of information they are receiving however this is likely to be in jurisdictions that require additional disclosure in the front half or outside of the financial statements.

One IASB member noted that disclosures around risks and uncertainties should be very specific to entities therefore it is important to think carefully about what kind of information would be useful to users. Other IASB member voiced concern that risk and uncertainties disclosures are not specific to the extractives industry and therefore should be considered as part of a wider project instead.

Some IASB members expressed a view that the risks and uncertainties disclosures should also extend to climate risk given this could have a significant impact for this industry. Other IASB members disagreed, noting that this was already being covered by the ISSB sustainability standards. Another IASB member added that climate risk applied to all entities, not just those in the extractive industry.

One IASB member commented that disclosing a breakdown of E&E assets or expenditure by major project could provide very useful information for users. However, another IASB member cautioned that preparers may be reluctant to provide such information as it could be deemed to be commercially sensitive. It was proposed that this question be explored further with preparers during the outreach to be performed in the next phase of the project.

Next steps

The staff will proceed with Phases II and III of the project which involve further exploring the suggestions in Agenda Paper 19C. The work to remove the temporary status of IFRS 6 is expected to be completed alongside the work to improve the disclosure objectives and requirements.

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