The International Accounting Standards Board (IASB) has decided to retain IFRS 6 Exploration for and Evaluation of Mineral Resources following an extensive review that spanned a number of years and produced no compelling evidence that changing to the status quo would be beneficial.
IFRS 6 has been around for as long as IFRS Accounting Standards have been in existence. It was issued to provide a temporary solution that allowed entities involved in extractive activities to continue to apply their existing exploration and evaluation accounting expenditure policies. Without such a standard to deal with extractive activities, entities would have had to apply the requirements in AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors to develop appropriate accounting policies. Consequently, many extractive entities would then not have been able to capitalise exploration and evaluation costs.
The intention was that by issuing IFRS 6 as an interim measure, it would afford the IASB time to complete a comprehensive review of accounting for extractive activities.
That comprehensive review is now done following a Discussion Paper issued in 2010, and a research project on extractive activities that commenced in 2018 and concluded in 2023. The aim of this project was to gather evidence to determine whether to develop proposals to amend or replace IFRS 6.
The IASB has decided to retain IFRS 6 without any changes to the recognition, measurement and disclosure requirements for exploration and evaluation expenditure.
While there are diverse accounting policies for exploration and evaluation expenditure, often due to an entity’s specific circumstances, this does not appear to be of major concern for stakeholders. The extractives industry has well-established accounting practices that precede IFRS 6, and the research identified some industry trends and evidence of alignment of accounting practices between similar entities.
Stakeholder feedback also suggested that users of financial statements are oftentimes more interested in information about the nature and results of the entity’s activities and cash flows (liquidity), especially for smaller entities. Whether a small entity capitalises or expenses its exploration and evaluation expenditure is typically not material information.
As part of its next volume of Annual Improvements to IFRS Accounting Standards, the IASB will remove the word ‘Temporary’ from the heading of the section in IFRS 6 that permits entities to ignore the hierarchy requirements in IAS 8 when it comes to their accounting policies for exploration and evaluation expenditure.
The choice to either expense or capitalise exploration and evaluation expenditure therefore prevails. Australian entities involved in extractive activities are, however, reminded that they must still apply the Australian-specific recognition and measurement requirements contained in AASB 6, the Australian counterpart to IFRS 6.