IFRS 6 Exploration for and Evaluation of Mineral Resources allows organisations adopting the standard for the first time to continue to apply pre-IFRS accounting rules for exploration and evaluation assets.
Additionally, it alters the impairment testing of exploration and evaluation assets by providing new impairment indicators and allows for aggregate assessment of the carrying amount (not more significant than a segment).
Exploration and evaluation of mineral resources refer to the process of locating and evaluating mineral resources, such as minerals, oil, natural gas, and similar non-regenerative resources, after an entity has obtained legal rights to explore in a particular area, as well as determining the technical feasibility and commercial viability of extracting the mineral resource.
Exploration and evaluation expenditure is spent in conjunction with the exploration and assessment of mineral resources prior to demonstrating the technical feasibility and economic viability of extracting the mineral resource.
Accounting policies for exploration and evaluation
IFRS 6 permits an organisation to create an accounting policy for the asset recognition of exploration and evaluation expenditures without considering the requirements of IAS 8 Accounting Policies, Changes in Accounting Estimates, and Errors.
Thus, a company that adopts IFRS 6 may continue to use the accounting rules in effect immediately before the adoption. This involves adhering to the accounting rules’ recognition and measurement methods.
IFRS 6 essentially affects IAS 36’s applicability to exploration and evaluation assets recognised by a business following its accounting policy. Specifically:
- Entities that recognise exploration and evaluation assets are obliged to conduct an impairment test on such assets where the standard’s particular facts and circumstances indicate that an impairment test is necessary. The facts and circumstances set forth in IFRS 6 are not comprehensive and are used in lieu of IAS 36’s ‘indicators of impairment.’
- Entities may adopt an accounting strategy for assigning exploration and evaluation assets to cash-generating units or groupings of cash-generating units.
- This accounting approach might result in a different allocation than would be the case if IAS 36 rules were followed. If an impairment test is necessary, any resulting impairment loss is quantified, reported, and declared in line with IAS 36.
Presentation and disclosure
A business should classify exploration and evaluation assets separately from other assets and provide the disclosures required by IAS 16 Property, Plant and Equipment or IAS 38 Intangible Assets in accordance with their classification.
IFRS 6 requires disclosure of information that identifies and justifies the amounts recognised in a company’s financial statements as a result of mineral resource exploration and appraisal, including:
- its exploration and evaluation accounting procedures, including the recognition of exploration and evaluation assets
- the quantities of assets, liabilities, income and cost, and operating and investment cash flows resulting from mineral resource exploration and evaluation.