Extractive activities – draft discussion paper

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13 Aug 2009

The IASB has posted on its website a working draft of a discussion paper Extractive Activities.

The draft was prepared by a project team comprising staff of the national accounting standard-setters in Australia, Canada, Norway, and South Africa. The paper addresses financial reporting issues associated with exploring for and finding minerals, oil, and natural gas deposits, developing those deposits, and extracting the minerals, oil, and natural gas. The paper notes that an absence of comprehensive IFRS literature on the subject has contributed to a divergence in practice under IFRSs. The paper reviews the issues and presents the recommendations of the project team. It is posted for information only – comments are not requested. The IASB plans to invite comments on the project team's proposals in the first quarter of 2010. The project is not yet on the IASB's active agenda. The IASB has agreed that if it adds the extractive activities project to its agenda, it will regard the discussion paper as the first stage in its due process. In that case, the IASB would publish an exposure draft as the next phase of such a project.

Key proposals in the working draft include

  • Asset recognition. The project team proposes that legal rights, such as exploration rights or extraction rights, should form the basis of the minerals or oil and gas asset. The asset is recognised when the legal rights are acquired. Information obtained from subsequent exploration and evaluation activities and development works undertaken to access the minerals or oil and gas deposit would both be treated as enhancements of the legal rights asset.
  • Measurement. The project team's view is that these assets should be measured at historical cost and that, in addition, detailed disclosure about the entity's minerals or oil and gas assets should be provided to enhance the relevance of the financial statements
  • Unit of account. The project team's view is that the geographical boundary of the unit of account would initially be defined according to the exploration rights held. As exploration, evaluation and development activities take place, the unit of account will progressively contract until it becomes no greater than a single area, or group of contiguous areas, for which the legal rights are held and which is managed separately and would be expected to generate largely independent cash flows.
Here is a link to the Project Page on the IASB's Website where the draft can be downloaded.


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