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IFRS-6: Extractive Industries

IFRS 6, ‘Exploration for and evaluation of mineral resources’, addresses the financial reporting for the exploration for and evaluation of mineral resources; it does not address other aspects of accounting by entities engaged in the exploration for and evaluation of mineral reserves (such as activities before an entity has acquired the legal right to explore or after the technical feasibility and commercial viability to extract resources have been demonstrated). The activities outside the scope of IFRS 6 are accounted for according to the applicable standards (such as IAS 16, ‘Property, plant and equipment’, IAS 37, ‘Provisions, contingent liabilities and contingent assets’, and IAS 38, ‘Intangible assets’).

The accounting policy adopted for the recognition of exploration and evaluation assets should result in information that is relevant and reliable. However, as a concession, certain further rules of IAS 8, ‘Accounting policies, changes in accounting estimates and errors’, need not be applied. This permits companies in this sector to continue, for the time being, to apply policies that were followed under national GAAP that would not comply with the requirements of IFRS. The ccounting policy may be changed only if the change makes the financial statements more relevant and no less reliable, or more reliable and no less relevant – in other words, if the new accounting policy takes it closer to the Framework requirements. Exploration and evaluation assets are initially measured at cost. Exploration and evaluation assets are classified as tangible or intangible assets, according to the nature of the assets acquired. Management should apply that classification consistently.

After recognition, an entity should apply either the cost model or the revaluation model to the exploration and evaluation assets, based on IAS 16, ‘Property, plant and equipment’, or IAS 38, ‘Intangible assets’, according to nature of the assets. As soon as technical feasibility and commercial viability are determined, the assets are no longer classified as exploration and evaluation assets.

The exploration and evaluation assets are tested for impairment when facts and circumstances suggest that the carrying amounts may not be recovered. The assets are also tested for impairment before reclassification out of exploration and evaluation. The impairment is measured, presented and disclosed according to IAS 36, ‘Impairment of assets’, except that exploration and evaluation assets are allocated to cash-generating units or groups of cash-generating units no larger than a segment.

Management should disclose the accounting policy adopted as well as the amount of assets, liabilities, income and expense and investing cash flows arising from the exploration and evaluation of mineral resources.

You may want to read the other chapters as well:

IFRS-1: First Time Adoption of IFRS
IFRS-2: Share-based Payment
IFRS-3: Business Combination
IFRS-4: Insurance Contract
IFRS-5: Disposal of Subsidiaries, Business and Non-current Asset
IFRS-6: Extractive Industries
IFRS-7, IAS 32 & 39: Financial Instruments
IFRS-8: Segment Reporting

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