IAS 7 — Classification of expenditures

Date recorded:

The IFRIC discussed a request to provide guidance on whether exploration and evaluation expenditure in extractive industries should be classified as arising from operating or investing activities in the statement of cash flows.

The staff analysis also included similar types of expenditures (such as advertising and promotional activities, research and development activities, staff training) and pointed out:

  • In all such cases, the expenditure is intended to enhance entities' future income or cash flows but does not give rise to an asset that meets the recognition criteria in IFRSs. The expenditure is therefore recognised in profit or loss as an expense when it is incurred.
  • IAS 7 Statement of Cash Flows appears to require the classification of expenditure that must be charged to expense when incurred as operating activities. However, IAS 7 does not specifically prohibit the classification of such expenditure as investing activities if it can be argued that it gives rise to an asset that it not recognised.
  • The issue could most efficiently be resolved by recommending that the Board amend IAS 7 to clarify that only expenditures that result in recognised assets can be classified as investing activities.

The IFRIC agreed with the staff analysis not to add the issue to the agenda. The staff suggested that the agenda decision should address not only exploration and evaluation expenditure but all similar types of expenditures. The IFRIC asked the staff to redraft the tentative agenda decision for discussion at a future meeting.

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