IFRS 6 — Exploration for and Evaluation of Mineral Resources
IFRS 6 Exploration for and Evaluation of Mineral Resources has the effect of allowing entities adopting the standard for the first time to use accounting policies for exploration and evaluation assets that were applied before adopting IFRSs. It also modifies impairment testing of exploration and evaluation assets by introducing different impairment indicators and allowing the carrying amount to be tested at an aggregate level (not greater than a segment).
IFRS 6 was issued in December 2004 and applies to annual periods beginning on or after 1 January 2006.
History of IFRS 6
|November 2000||IASC issues paper Summary of Issues: Extractive Industries published and comments invited||Comment deadline 30 June 2001|
|1 April 2001||Project on extractive industries carried over from IASC||History of the comprehensive project|
|September 2002||Short-term project split off from comprehensive project||History of the short-term project|
|16 January 2004||Exposure Draft ED 6 Exploration for and Evaluation of Mineral Resources published||Comment deadline 16 April 2004|
|9 December 2004||IFRS 6 Exploration and Evaluation of Mineral Resources issued||Effective for annual periods beginning on or after 1 January 2006|
|30 June 2005||Amended by Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IFRS 6 Exploration for and Evaluation of Mineral Resources (transitional relief)||Amended Basis for Conclusions to IFRS 6 only|
Amendments under consideration by the IASB
Summary of IFRS 6
Exploration for and evaluation of mineral resources means the search for mineral resources, including minerals, oil, natural gas and similar non-regenerative resources after the entity has obtained legal rights to explore in a specific area, as well as the determination of the technical feasibility and commercial viability of extracting the mineral resource. [IFRS 6.Appendix A]
Exploration and evaluation expenditures are expenditures incurred in connection with the exploration and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource is demonstrable. [IFRS 6.Appendix A]
Accounting policies for exploration and evaluation
IFRS 6 permits an entity to develop an accounting policy for recognition of exploration and evaluation expenditures as assets without specifically considering the requirements of paragraphs 11 and 12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. [IFRS 6.9] Thus, an entity adopting IFRS 6 may continue to use the accounting policies applied immediately before adopting the IFRS. This includes continuing to use recognition and measurement practices that are part of those accounting policies.
IFRS 6 effectively modifies the application of IAS 36 Impairment of Assets to exploration and evaluation assets recognised by an entity under its accounting policy. Specifically:
- Entities recognising exploration and evaluation assets are required to perform an impairment test on those assets when specific facts and circumstances outlined in the standard indicate an impairment test is required. The facts and circumstances outlined in IFRS 6 are non-exhaustive, and are applied instead of the 'indicators of impairment' in IAS 36 [IFRS 6.19-20]
- Entities are permitted to determine an accounting policy for allocating exploration and evaluation assets to cash-generating units or groups of CGUs. [IFRS 6.21] This accounting policy may result in a different allocation than might otherwise arise on applying the requirements of IAS 36
- If an impairment test is required, any impairment loss is measured, presented and disclosed in accordance with IAS 36. [IFRS 6.18]
Presentation and disclosure
An entity treats exploration and evaluation assets as a separate class of assets and make the disclosures required by either IAS 16 Property, Plant and Equipment or IAS 38 Intangible Assets consistent with how the assets are classified. [IFRS 6.25]
IFRS 6 requires disclosure of information that identifies and explains the amounts recognised in its financial statements arising from the exploration for and evaluation of mineral resources, including: [IFRS 6.23–24]
- its accounting policies for exploration and evaluation expenditures including the recognition of exploration and evaluation assets
- the amounts of assets, liabilities, income and expense and operating and investing cash flows arising from the exploration for and evaluation of mineral resources.
Special IAS Plus Newsletter explaining IFRS 6
On 31 January 2005, Deloitte's IFRS Global Office published a special edition of our IAS Plus Newsletter titled IFRS 6 Exploration for and Evaluation of Mineral Resources.