Financial reporting issues facing the resources sector

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06 Jan 2009

Deloitte (Australia) has published the December 2008 issue of Extracting Value – an occasional series addressing the issues facing the resources industry (mining and oil and gas companies). This issue focuses on the financial reporting implications for the resources sector of the global financial crisis.

Click to download Extracting Value - December 2008 (PDF 2,051k). The publication includes the following table highlighting some financial reporting areas that resources companies should consider in responding to the global credit crisis in the upcoming reporting season. Many of these are equally applicable to companies in other industries:


Example considerations


  • likelihood of increased risk premiums being built in discount rates due to a lower risk appetite in current market
  • rapid changes in short term interest rates and their effects on discount rates
  • assumptions underlying reserve and resource amounts may need revision
  • long-term commodity price and exchange rate assumptions need careful consideration
  • on the cost side, inflation assumptions may be difficult to determine as growth slows and reverses simultaneously across many of the world's economies

Loans, borrowings and other financing

  • project financing plans may require reassessment
  • classification of debt as current or non-current in light of potential covenant breaches and unusual embedded terms which may be triggered in the current economic climate
  • fair value considerations where longer-term funding is not based on current margin spreads and the effects of a rapidly falling interest rate environment
  • possibility of embedded derivatives in old or newly renegotiated contracts that may have value in the current climate, even if previously immaterial or not identified

Provisions and other long-term obligations

  • long-term discount rates may materially impact the carrying amount of decommissioning and similar provisions, triggering adjustments under Interpretation 1 [IFRIC 1]
  • consideration of whether contractual obligations may have become onerous in light of current market conditions

Financial instruments

  • counterparty risk and fair values may require reassessment
  • effectiveness testing of hedging arrangements may come under pressure in volatile markets
  • consideration of terms in loan and other agreements which may contain embedded derivatives, particularly those that were previously of little value or not previously identified
  • consider whether items classified as 'cash equivalents' still meet the definition
  • whether contracts which previously met the 'own use' exemption under AASB 139 [IAS 39] are still able to meet the exemption requirements due to net settlement

Depreciation, amortisation and depletion

  • reserve and resources estimates may need revision
  • the effect and timing of changes in estimates on current year amortisation needs to be considered

Share-based payments

  • accounting for cancellation or modification of share-based payment schemes can have a significant impact on reported profits
  • valuation of share-based payment arrangements under AASB 2 [IFRS 2] can be more judgemental in a volatile environment

Deferred taxes

  • careful reassessment of the recognition criteria for deferred tax assets may be required, particularly in relation to capital losses recognised on the basis of anticipated capital gains and tax losses that may be subject to loss integrity measures under the tax law (same business test, continuity of ownership test, etc)


  • many resources companies have 'strategic' interests in other entities, these must generally be fair valued to current market prices
  • 'available-for-sale' reserves that are in debit (losses) may need to be recycled to the income statement, directly impacting profits


  • market reaction to disclosures around impairment, particularly key assumptions and sensitivity analyses (whether impairment losses have been recognised or not)
  • consideration should be given to enhancing disclosures around significant estimates and judgements under AASB 101 [IAS 1] – this is an area where Australian entities sometimes trail global best practice
  • AASB 7 [IFRS 7] disclosures around risks, how they are managed, and sensitivity analyses may take on increased importance
  • increased scrutiny of liquidity disclosures might be expected
  • fair value disclosures will need to be carefully considered and measured


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