IFRS 6 Exploration for and Evaluation of Mineral Resources provides guidance on accounting for exploration and evaluation expenditures, including the recognition of exploration and evaluation assets. The standard was published in December 2004 and is effective from 1 January 2006. Examples of such expenditures are those for exploration and evaluation activities, which can be recognised according to IFRS 6 as either an asset or an expense. IFRS 6 is not currently on the work plan of the IASB. 6 PwC | IFRS overview 2019 Accounting principles and applicability of IFRS The IASB has the authority to set IFRS and to approve interpretations of those standards. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox. Short example of a similar situation: Under IAS 18, many telecom operators provided free handsets to customers and treated them as “marketing costs”, or costs to obtain a client. 4. IFRS 6 permits entities to continue to use their existing accounting policies, provided they comply with paragraph 10 of IAS 8®, Accounting policies, changes in accounting estimates and errors – that is they result in information which is relevant and reliable. 4. In several Assuming the interest rate is 6% per annum. The global body for professional accountants, Can't find your location/region listed? It was also argued that some entities are created just to carry out exploration, and once this is complete, they sell the rights to the minerals found. The entity’s right to explore in an area has expired, or will expire in the near future, without renewal. 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. 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. Basically, the entity can retain the accumulated cost as an exploration asset until there is sufficient information to determine whether there will be commercial cash flows or not. 5. A decision has been made to discontinue exploration and evaluation in an area because of the absence of commercial reserves. 2. IFRS 6 is an interim standard, and is a short-term solution to the problem of accounting for the exploration and evaluation of mineral resource assets. This means that the fundamental principal of capitalisation of exploration costs, used by the majority of mining entities, still remains. IFRS 6 therefore deems these costs to be assets. IFRSs – With respect to revenue recognition, the IFRS framework is general in nature in their requirements, if compared to the GAAP. be neutral (free from bias), prudent, and complete. Please visit our global website instead, Can't find your location listed? There was a lack of guidance prior to this IFRS Standard, and where national standards did exist, the accounting practices were diverse, and a number were used throughout the world to account for the costs involved in exploration and extraction. A Lack of sufficient data to determine whether the carrying amount of the exploration and evaluation asset is likely to be recovered in full from successful development or by sale It sometimes happens that a lease starts with a rent-free period. A policy must: Changes made to an entity’s accounting policy for exploration and extraction assets can only be made if the result is closer to the principles of the Conceptual Framework. Sufficient data exists to indicate that the book value will not be fully recovered from future development and production. Exploration and evaluation expenditure might therefore be capitalised earlier than would otherwise be the case under the Conceptual Framework. Examples of expenditures that may be included as part of E&E assets: Acquisition of rights to explore; Assets recognised in respect of licences and surveys should therefore be classified as intangible assets. By using this site you agree to our use of cookies. hyphenated at the specified hyphenation points. Treatment of revenue recognition is one of the few important differences between US GAAP and IFRS systems. An entity accounts for its exploration and evaluation expenditure either in accordance with the Conceptual Framework or with the exemption permitted by IFRS 6. 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 therefore also gives some flexibility when defining a CGU. Introduction and overview 421. During the preparatory works, ABC discovered that the operating lease contract related to a machine might require some adjustments. Subsequently, cost or the revaluation model, as described in IAS 16 and IAS 38. The assets are tested for impairment in accordance with IAS 36, subject to certain special requirements. The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. 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. Depreciation and amortisation is not calculated for the assets because the economic resource that the assets represent are not consumed until the production phase. 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. A The requirements and guidance in IFRSs dealing with similar and related issues Please allow me to further clarify. These included capitalising the costs, or writing them off in the same way as research expenses. Most of the major entities in this sector use the ‘successful efforts’ method, where the costs incurred in finding, acquiring, and developing reserves are capitalised on a ‘field by field’ basis. This is a list of the International Financial Reporting Standards (IFRSs) and official interpretations, as set out by the IFRS Foundation.It includes accounting standards either developed or adopted by the International Accounting Standards Board (IASB), the standard-setting body of the IFRS Foundation.. Updated by a member of the DipIFR examining team. A lease modification includes adding or ... See examples 6 and 7. Reference • Understanding IFRS Fundamentals, Nandakumar Ankarath, Kalpesh J. Mehta,Dr. Model IFRS statements These are illustrative IFRS financial statements of a listed company, prepared in accordance with International Financial Reporting Standards. Below is the index of all IFRS calculation examples available on IFRScommunity.com that come with an illustrative excel file: IFRS 2 excel examples: share-based payment with service vesting condition and market condition; share-based payment with non-market … Examples of better disclosure… IFRS 16 Thematic Review (September 2020) Executive summary Descriptions of judgements made by management in the application of the company’s accounting policy were absent or inadequate. C Only if the change makes the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable and no less relevant to those needs On discovery of a commercially-viable mineral reserve, the capitalised costs are allocated to the discovery. IFRS 6 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. What is an entity required to consider when deciding on its accounting policies for exploration and evaluation activities? An entity should develop a policy for allocating these assets to groups of cash generating units (CGUs) and apply that policy consistently. Please visit our global website instead. IFRS 12.B22(b) Examples of entities with a narrow and well-defined objective that may be structured entities include those designed to effect a tax-efficient lease, carry out research and development activities, provide a source of capital or funding to an entity or provide investment opportunities for investors by passing on . ... For Example: A construction contract priced in foreign currency. If a discovery is not made, the expenditure is charged as an expense. IFRS 6 makes limited changes to existing practice. 13.4 Consequential amendments to other IFRS requirements 341 13.5 First-time adoption 342 Guidance referenced 344 Detailed contents 345 Index of examples 348 Index of KPMG insights 355 About this publication 363 Keeping in touch 364 Acknowledgments 366 The change must result in a policy that is more relevant and no less reliable, or more reliable and no less relevant, than the previous policy. Scope 422. Is an entity ever required or permitted to change its accounting policy for exploration and evaluation expenditure? D Whether the accounting policy results in information that is relevant and reliable. IFRS. However, some companies have used the ‘full cost’ approach, where all costs are capitalised. Each word should be on a separate line. For example, judgements made about the lease term or scope of the standard. These Illustrative Examples accompany IFRS 17 Insurance Contracts (issued May 2017; see separate booklet) and are issued by the International Accounting Standards Board (the Board). IFRS allows revaluation of the following assets to fair value if fair value can … These entities' financial statements give information 1. Example 1: Lease accounting in IFRS 16. Presentation of discontinued operations 426. BC67-BC81) Investment contracts with discretionary participation features (paragraphs 4(b) and 71 of IFRS … A Entities are required to change accounting policy for expenditure if the change results in more useful information Non-current assets and disposal groups held for sale 422. A principal purpose of IFRS 6 is to specify the circumstances in which entities should test exploration and evaluation costs for impairment, and when to require disclosure of information about such assets. In your first example, a lease with less than 12 months left as of transition date, July 1, 2019 in this example, is able to be classified as short term and therefore out of scope for the transition to IFRS 17. Example: Operating lease in the lessee’s accounts under IFRS 16 ABC, the manufacturing company, needs to adopt the new standard IFRS 16 Leases in the reporting period ending 31 December 2019. Please read, International Financial Reporting Standards, IFRS 6 Exploration for and Evaluation of Mineral Resources, European Union formally adopts updated references to the Conceptual Framework, AcSB updates research on extractive industries, 17th ESMA enforcement decisions report released, 16th ESMA enforcement decisions report released, IVSC explores extractive industry valuations, EFRAG endorsement status report 9 December 2019, Deloitte comment letter on DP/2010/1 'Extractive Activities', IAS Plus newsletter - Special Global Edition – IFRS 6 Exploration for and Evaluation of Mineral Resources, Extractive activities — Exploration for and evaluation of mineral resources, Extractive activities — Comprehensive project, Project on extractive industries carried over from IASC, Short-term project split off from comprehensive project, Effective for annual periods beginning on or after 1 January 2006, Amended Basis for Conclusions to IFRS 6 only, 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. D An entity would not be permitted to change accounting policy unless there is a new or revised standard that replaces the existing requirements in IFRS 6. The impact of International Financial Reporting Standards (IFRS® Standards) has been felt extensively in the exploration industry – particularly the oil and gas industry where key dilemmas and judgements made are greatest at the exploration and production stage. Which of the following facts or circumstances would not trigger a need to test an evaluation and exploration asset for impairment? Example: rent-free period. [IFRS 6.Appendix A]. IFRS 5 Non-current Assets Held for Sale and Discontinued Operations 421. 6 is not currently on the work plan of the absence of commercial reserves is the... Policy consistently assets and disposal groups Held for Sale 422 cash generating units ( CGUs ) and apply that consistently! Or the revaluation model, as described in IAS 16 and IAS 38 would. Not currently on the work plan of the IASB by the majority of mining,! You with a rent-free period ] Thus, an entity adopting IFRS 6, many entities would have them... Illustrative IFRS financial statements of a commercially-viable mineral reserve, the IFRS assets under IFRS is! Treatment of revenue recognition is one of the asset may not be recoverable that! Is similar to IFRS 4, Insurance Contracts will not be recoverable by a member of few! Or will expire in the statement of financial position, exploration and evaluation expenditure either in accordance IAS! To the discovery including the recognition of exploration costs, used by the majority of mining entities, still.. To certain special requirements accountants, Ca n't find your location/region listed accounting... Application of key aspects of IFRS 9 evaluation expenditures including the recognition of exploration and evaluation expenditure might be... 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