INTRODUCTION
Reasons for issuing the [draft] IFRS
IN1 The exploration for and evaluation of mineral resources are
excluded from
the scope of IFRSs that would otherwise be relevant (eg IAS 16
Property, Plant and Equipment and [draft] IAS 38 Intangible
Assets*). The International Accounting Standards Board is
concerned that accounting practices for such activities are diverse and differ
not only between sectors of the extractive industries but also from the
requirements in IFRSs for activities that may be thought to be similar and
related.
IN2 It is not feasible for the Board to complete a comprehensive
project on
accounting and financial reporting issues for the extractive
industries in time for the many entities that may wish or are required to adopt
IFRSs in 2005. Therefore, the Board wishes to provide guidance on the treatment
of exploration and evaluation expenditures that will enhance comparability
between entities while avoiding unnecessary disruption to the application of
those treatments, pending more complete consideration of the accounting issues
involved.
Application of IFRSs to entities engaged in the
exploration for and evaluation of mineral resources
IN3 The [draft] IFRS applies to all entities incurring
exploration and evaluation
expenditures.
IN4 All IFRSs are applicable to entities that are engaged in the
exploration for
and evaluation of mineral resources that make an unreserved
statement of compliance with IFRSs in accordance with IAS 1 Presentation of
Financial Statements. Consequently, each IFRS must be applied by all such
entities except to the extent that an IFRS provides a specific exclusion from
its scope.
* in Exposure Draft of Proposed Amendments to IAS 36,
Impairment of Assets, and IAS 38, Intangible Assets (December 2002)
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Main features of the [draft] IFRS
IN5 The [draft] IFRS permits an entity to continue the accounting
policies
applied in its most recent annual financial statements for
exploration and evaluation expenditures, including the recognition and
measurement of exploration and evaluation assets. In addition, it permits an
entity to use an alternative level of aggregation for exploration and
evaluation assets when testing such assets for impairment in accordance with
[draft] IAS 36.
IN6 The definition of exploration for and evaluation of mineral
resources
distinguishes exploration and evaluation expenditures from
other expenditures that may be regarded as similar (for example, research
expenditures).
IN7 The [draft] IFRS exempts entities from some requirements of
other IFRSs
and the IASB Framework. Instead of requiring entities
engaged in the exploration for and evaluation of mineral resources to consider
the various sources of authoritative requirements and guidance in developing an
accounting policy for such activities, the [draft] IFRS permits those entities
the alternative of continuing their existing accounting treatment in specified
circumstances. In particular, paragraph 4 provides that an entity may continue
to account for exploration and evaluation assets in accordance with the
accounting policies applied in its most recent annual financial statements.
IN8 The [draft] IFRS permits an entity that has recognised an
exploration and
evaluation asset to test that asset for impairment on the
basis of a `cash-generating unit for exploration and evaluation assets' rather
than the cash-generating unit that might otherwise be required by [draft] IAS
36. However, entities are not necessarily permitted to continue existing
practices with respect to the impairment test itself. Rather,
the
consequence of the amendment is that the [draft] IAS 36 impairment test
may be applied at a level different from that otherwise required by [draft] IAS
36.
IN9 Paragraph 13 sets out indicators of impairment for
exploration and
evaluation assets. These are among the external and internal
sources of information in paragraphs 9-13 of [draft] IAS 36 to be used by
entities when identifying whether such assets might be impaired.
IN10 The [draft] IFRS requires disclosure about:
(a) the amounts in the entity's financial statements that
arise from exploration and evaluation expenditures.
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EXPOSURE DRAFT JANUARY 2004
(b) the level at which the entity assesses exploration and
evaluation assets for impairment.
IN11 The [draft] IFRS should be applied for annual periods
beginning on or after 1 January 2005. Earlier application is encouraged.
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[Draft] International Financial Reporting Standard IFRS
X
Exploration for and Evaluation of Mineral Resources
OBJECTIVE
1 The objectives of this [draft] IFRS are:
(a) to make limited improvements to accounting practices for
exploration and evaluation expenditures, without requiring major
changes that may need to be reversed when the Board undertakes a comprehensive
review of accounting practices used by entities engaged in the exploration
for and evaluation of mineral resources.
(b) to require entities that recognise exploration and
evaluation assets to test such assets for impairment in accordance with
[draft] IAS 36 Impairment of Assets. An entity that has recognised
exploration and evaluation assets may test such assets for impairment on the
basis of a cash-generating unit for exploration and evaluation assets
rather than the cash-generating unit that might otherwise be
required by [draft] IAS 36.
(c) to require entities engaged in the exploration for and
evaluation of mineral resources to disclose information about exploration and
evaluation assets, the level at which such assets are assessed for impairment
and any impairment losses recognised.
SCOPE
2 An entity shall apply this [draft] IFRS to exploration and
evaluation
expenditures that it incurs.
3 This [draft] IFRS does not address other aspects of accounting
by entities
engaged in the exploration for and evaluation of mineral
resources. Except to the extent that an IFRS provides an exclusion from its
scope, all IFRSs (including International Accounting Standards and
Interpretations) are applicable to entities engaged in such activities that
make an unreserved statement of compliance with IFRSs in accordance with IAS 1
Presentation of Financial Statements.
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EXPOSURE DRAFT JANUARY 2004
RECOGNITION OF EXPLORATION AND EVALUATION
ASSETS
Temporary exemption from some other IFRSs
4 When an entity first applies this [draft] IFRS, it may
elect to continue
to recognise and measure exploration and evaluation
assets in accordance with the accounting policies it applied in its most recent
annual financial statements, except as provided in paragraph 8.
5 Paragraphs 11 and 12 of IAS 8 Accounting Policies, Changes
in
Accounting Estimates and Errors specify sources of
authoritative requirements and guidance that management is required to consider
in developing an accounting policy for an item if no IFRS applies specifically
to that item. Subject to paragraph 8, this [draft] IFRS permits an entity,
rather than considering the sources specified in IAS 8, to continue its
accounting policies for the recognition and measurement of exploration and
evaluation assets.
MEASUREMENT OF EXPLORATION AND EVALUATION
ASSETS
Measurement at recognition
6 Exploration and evaluation assets shall be measured at cost.
Elements of exploration and evaluation assets
7 Expenditures related to the following activities may be
included in the initial
measurement of exploration and evaluation assets:
(a) acquisition of rights to explore;
(b) topographical, geological, geochemical and geophysical
studies;
(c) exploratory drilling;
(d) trenching;
(e) sampling; and
(f) activities in relation to evaluating technical
feasibility and commercial viability of extracting a mineral resource.
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8 Expenditures that shall not be included in the initial
measurement of
exploration and evaluation assets are:
(a) the development of a mineral resource once technical
feasibility and commercial viability of extracting a mineral resource have been
established; and
(b) administration and other general overhead costs.
9 An entity applies IAS 37 Provisions, Contingent Liabilities
and Contingent
Assets to the costs of any obligations for removal
and restoration that are incurred during a particular period as a consequence
of having undertaken the exploration for and evaluation of mineral
resources.
Measurement after recognition
10 After recognition, an entity shall apply either the cost model
or the
revaluation model (see IAS 16 Property, Plant and
Equipment and [draft] IAS 38 Intangible Assets) to its
exploration and evaluation assets.
Changes in accounting policies
11 An entity that elects in accordance with paragraph 4
to continue to
use its previous accounting policies for exploration
and evaluation assets shall change those policies if, and only if, the change
makes the financial statements more relevant to the decision-making needs of
users and reliable, judged by the criteria in IAS 8.
IMPAIRMENT
Recognition and measurement
12 Except as provided in paragraph 14, an entity that has
recognised
exploration and evaluation assets shall assess those
assets for impairment annually and recognise any resulting impairment loss in
accordance with [draft] IAS 36.
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Identifying an exploration and evaluation asset that
may be impaired
13 [Draft] IAS 36 provides guidance on identifying assets that
may be impaired
and requires an entity to consider specified external sources
of information. In the case of an entity that has recognised an exploration and
evaluation asset, in addition to the sources specified in [draft] IAS 36, such
information includes:
(a) the period for which the entity has the right to explore
in the specific area has expired during the period or will expire in the near
future, and is not expected to be renewed;
(b) further exploration for and evaluation of mineral
resources in the specific area are neither budgeted nor planned for in the near
future;
(c) significant changes with an adverse effect on the main
assumptions, including prices and foreign exchange rates, underlying approved
budgets or plans for further exploration for and evaluation of mineral
resources in the specific area;
(d) the decision not to develop the mineral resource in the
specific area has been made;
(e) the entity plans to dispose of the asset at an
unfavourable price; and
(f) the entity does not expect the recognised exploration and
evaluation
assets to be reasonably capable of being recoverable from a
successful development of the specific area, or by its sale.
Cash-generating unit for exploration and evaluation
assets
14 When an entity first applies this [draft] IFRS, it
shall elect to test
exploration and evaluation assets for impairment on
the basis of either a `cash-generating unit' or a `cash-generating unit for
exploration and evaluation assets'. Any assets other than exploration and
evaluation assets included within the cash-generating unit for exploration and
evaluation assets shall continue to be subject to separate impairment testing
in accordance with [draft] IAS 36, which is performed before testing for
impairment the cash-generating unit for exploration and evaluation
assets.
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DISCLOSURE
15 An entity shall disclose information that identifies
and explains the
amounts recognised in its financial statements that
arise from the exploration for and evaluation of mineral resources.
16 To comply with paragraph 15, an entity shall disclose:
(a) its accounting policies for exploration and evaluation
expenditures including the recognition of exploration and evaluation assets.
(b) the amounts of assets, liabilities, income and expense
(and, if it presents its cash flow statement using the direct method, cash
flows) arising from the exploration for and evaluation of mineral resources.
(c) the level at which the entity assesses exploration and
evaluation assets for impairment.
EFFECTIVE DATE
17 An entity shall apply this [draft] IFRS for annual periods
beginning on or
after 1 January 2005. Earlier application is encouraged. If an
entity applies this [draft] IFRS for a period beginning before 1 January 2005,
it shall disclose that fact.
EXPOSURE DRAFT JANUARY 2004
Appendix A Defined terms
This appendix is an integral part of the [draft]
IFRS.
cash-generating unit The smallest identifiable
group of assets that
generates cash inflows from continuing use that are largely
independent of the cash inflows from other assets or groups of assets.
cash-generating unit for exploration and evaluation
assets
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The smallest identifiable group of assets that, together with
exploration and evaluation assets, generates cash inflows from
continuing use on which impairment tests were performed by an entity under the
accounting policies applied in its most recent annual financial statements. A
cash-generating unit for exploration and evaluation assets shall be no larger
than a segment.
exploration and evaluation assets
exploration and
evaluation expenditures
exploration for and evaluation of mineral
resources
Exploration and evaluation expenditures
recognised as assets.
Expenditures incurred by an entity in connection with the
exploration for and evaluation of mineral resources.
The search for mineral resources, including
minerals, oil, natural gas and similar
non-regenerative
resources, as well as the determination of the technical feasibility and
commercial viability of extracting the mineral resource before the decision to
develop the mineral resource.
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Appendix B
Amendments to other IFRSs
The amendments in this [draft] appendix shall be applied
for annual periods beginning on or after 1 January 2005. If an entity applies
this [draft] IFRS for an earlier period, these amendments shall be applied for
that earlier period.
Amendment to IAS 16
B1 Paragraph 3 of IAS 16 Property, Plant and Equipment
is amended to read
as follows:
...
(a) biological assets related to agricultural activity (see
IAS 41 Agriculture);
(b) exploration and evaluation assets (see [draft] IFRS X
Exploration for and Evaluation of Mineral Resources); or
(c) mineral rights and mineral reserves such as oil, natural
gas and similar non-regenerative resources.
Amendment to [draft] IAS 38
B2 Paragraph 1 of [draft] IAS 38 Intangible Assets is
amended to read as
follows:
...
(c) expenditure on the exploration for and
evaluation of mineral resources (see [draft] IFRS X Exploration for and
Evaluation of Mineral Resources)
(d) expenditure on the development and extraction
of minerals, oil, natural gas and similar non-regenerative resources;
and
...
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