Analysis of extractive industries Discussion Paper

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29 Sep 2009

Deloitte Australia's Energy and Resources Group has published Issue 6 of the Extracting Value Newsletter.

A special edition focusing exclusively on the draft Discussion Paper (DP) Extractive Activities, recently released 'for information purposes' by the IASB. Whilst ostensibly proposing approaches producing outcomes similar to common industry practice, there are a number of interesting issues and considerations arising from the draft Discussion Paper – such as potentially mandating capitalisation of exploration expenditure and much more information about the fair value of reserves and resources. This edition of Extracting Value explores some of these issues, beginning the commercial and pragmatic analysis of the proposals. An excerpt:

In summary terms, the Discussion Paper proposes to:

  • introduce mineral reserve and resource definitions based on industry practice
  • eliminate 'phase accounting' – separate accounting for exploration and evaluation, development, production and so on – in favour of one asset, either a 'mineral asset' or 'oil and gas asset'
  • account for mining and oil and gas projects using a 'unit of account' which is effectively the 'area of interest' accounting commonly used in Australia under current standards
  • require measurement based on historical cost, but countenancing the possibility of using another measure such as current value or (more likely) fair value
  • retain a modified impairment approach to assets in the exploration and evaluation stage
  • introduce extensive disclosures, including a form of 'standardised value' for reserves/resources and possibly responding to the 'publish what you pay' lobby.

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