IAS 16 — Accounting for production phase stripping costs in the mining industry

Date recorded:

The Committee discussed a working draft of a draft Interpretation on accounting for stripping costs in the production phase.

Is the definition of an asset met?

The working draft of the Interpretation states that when the benefit of improved access created by stripping activity meets the definition of an asset that asset should be recognised as an enhancement of an existing asset. The 'new' asset follows the classification of the existing asset (that is, as tangible or intangible).

Several members of the Committee were troubled by aspects of this conclusion. Some thought that if the 'enhancement' met the definition of an asset, it should be recognised as a discrete asset and not added to another one. The idea of recognising additional components of an asset was particularly troubling in the situations in which the 'original' asset was an intangible asset (IAS 38 Intangible Assets does not include explicitly the concept of components). The Chairman, who led the technical discussion throughout this session (rather than the staff), disagreed and suggested that it would be possible to interpret IAS 38.57 as encompassing components in the light of the requirements of IAS 16 Property, Plant and Equipment.

Some Committee members were intrigued that component accounting might be read into IAS 38, but were worried that this might unleash unintended consequences. In particular, those members were concerned about very long-lived components (for example, 'life of mine' components) being recognised. To avoid such consequences, the draft Interpretation would need to explain the notion of a 'stripping campaign' rigorously. The Chairman noted that stripping campaigns were of short duration and that 'life-of-mine' units of account were not contemplated.

Committee members suggested that, should this argument be accepted, the draft Interpretation should state that the costs deferred and recognised as an asset should be recognised as a component of an existing asset. In addition, the supporting material (Basis for Conclusions, Application or Implementation Guidance) should expand the discussion around why the asset recognition criteria have been met for something that often looks like a period cost.

Committee members were also uneasy with the idea that the 'stripping campaign component' asset could be tangible or intangible. However, other Committee members observed that because legal and operational situations vary between jurisdictions, 'the asset' to which the stripping campaign refers would differ: in some cases it would be tangible; in others intangible. For example, in some jurisdictions the entity might own the land, in which case the asset would be tangible; in other jurisdictions only the rights to minerals or oil and gas deposits in the land-rights are often considered intangible assets. This point would be addressed in the Basis for Conclusions.

A Committee member noted that the discussion of whether the stripping costs meet the discussion of an asset was misplaced in the draft Interpretation and that this probably accounted for the degree of discomfort on the Committee. The Chairman agreed and recommended that the discussion, which clarifies that when stripping activity is routinely undertaken to access ore which will be mined in the current period, that activity does not meet the definition of an asset and the stripping costs should be accounted for as a cost of current production, should precede that stating what happens when asset recognition is appropriate.

The Chairman concluded this part of the debate, suggesting that there was sufficient support among the Committee members to proceed; however, the next version of the draft Interpretation should:

  • explain why deferred costs of a stripping campaign meet the definition of an asset but are not recognised as a separate asset;
  • explain why a stripping campaign is a component of another asset;
  • make no comment on whether a stripping campaign component is tangible or intangible in nature;
  • explain how it is possible to analogise the requirements in IAS 16 with respect to components to permit the recognition of components of an intangible asset under IAS 38.
  • be unequivocal that routine stripping activities would not normally meet the definition of a stripping campaign subject to the Interpretation.

Initial recognition and measurement

The Committee agreed that the stripping campaign component should be specifically associated (or identified) with an identified body of ore (or an oil and gas deposit) benefiting from the stripping campaign. The Chairman noted that a stripping campaign presupposes that the mine or oil and gas deposit has entered the production phase and that a stripping campaign is an activity directly related to an identified body of ore directly beneath (and therefore associated with) the overburden being removed.

Committee members accepted the Chairman's characterisation of the activities, but noted that this proved that the 'campaign' should be tightly defined, so that the beginning and end of each campaign is clear. This would also assist defining when and over what period the campaign should be depreciated (amortised).

Subsequent measurement

The Committee did not consider that specific requirements were necessary, the requirements of IASs 16, 36 and 38 being sufficient, with one exception. The Interpretation should clarify what happens to the carrying amount of a stripping campaign component when mining activity is halted for a time (for example, because commodity prices are unfavourable) versus when all activity ceases. It was agreed that there was guidance on idle assets in IAS 16 as well as the general impairment guidance that could be drawn upon.


Disclosures were not discussed specifically, but the draft Interpretation does not prescribe any disclosure, relying on the underlying IFRSs.


The Committee did not support the transition requirements as drafted. In addition, several Committee members criticised the lack of guidance for first time adopters. Prospective application would allow 'inappropriate' assets to remain in the financial statements, when such assets should be removed on transition to IFRS.

The Chairman asked Jean Paré to investigate the approach being adopted in Canada (currently in its transition year), especially by those 'junior exploration' entities that are currently applying guidance developed by the Canadian Emerging Issues Committee on the topic of deferred stripping costs.

A Committee member asked for a longer than usual effective date (issue + three months). However, the Chairman did not support this idea. In his view, 'it's not hard to do: the financial reporting answer may be uncomfortable, but the accounting is not hard to do.'


The Chairman closed the discussion noting that the staff would prepare a revised draft Interpretation to be presented at the Committee meeting in July 2010. It would be the intention to approve the draft for exposure at that meeting. The Chairman noted that, while he might have an opinion on the draft when presented to the IASB, he would no longer have a vote!

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