The ‘OBJECTIVE’ of IFRS 6 is to Specify the financial reporting for the Exploration for and Evaluation of Mineral Resources.
In particular, the IFRS requires:
- limited improvements to existing accounting practices for exploration and evaluation expenditures.
- entities that recognize exploration and evaluation assets to assess such assets for impairment in accordance with this IFRS and Measure any impairment in accordance with IAS 36.
- disclosures that identify and explain the amounts in the entity’s financial statements arising from the ‘Exploration for and Evaluation of Mineral Resources’ and help users of those financial statements understand the amount, timing and certainty of future cash-flows.
Table of Contents
IFRS 6 Effective Date
An entity shall apply this IFRS for annual periods beginning on or after 1 January 2006.
Earlier application is ‘ENCOURAGED’.
If an entity applies the IFRS for a period beginning before 1 January 2006, it shall disclose that fact.
IFRS 6 – Scope
An entity shall apply the IFRS to exploration and evaluation expenditures that it incurs.
The IFRS does NOT address other aspects of accounting by entities engaged in the exploration for and evaluation of mineral resources.
An entity shall NOT apply the IFRS to expenditures incurred:
- before the exploration for and evaluation of mineral resources, such as expenditures incurred before the entity has obtained the ‘legal rights’ to explore a specific area.
- after the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.
Recognition of Exploration and Evaluation Assets
When developing its ‘Accounting Policies’, an entity recognizing exploration and evaluation assets shall APPLY IAS 8.
| In the absence of an IFRS that specifically applies to a transaction, other event or condition, management shall use its judgement in developing and applying an accounting policy that results in information that is: |
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| (a) relevant to the economic decision‑making needs of users; AND |
| (b) reliable, in that the ‘Financial Statements’: (i) represent faithfully the financial position, financial performance and cash flows of the entity; (ii) reflect the economic substance of transactions, other events and conditions, and NOT Merely the legal form; (iii) are neutral, i.e free from bias; (iv) are prudent; AND (v) are complete in all Material respects. |
Measurement of Exploration and Evaluation Assets
1. Measurement at Recognition
‘Exploration and Evaluation Assets‘ shall be MEASURED at cost.
2. Elements of Cost of Exploration and Evaluation Assets
An entity shall DETERMINE an ‘Accounting Policy’ specifying which expenditures are recognized as exploration and evaluation assets and apply the policy consistently.
The following are Examples of expenditures that might be included in the ‘Initial Measurement’ of exploration and evaluation assets (the list is NOT exhaustive):
- acquisition of rights to explore;
- topographical, geological, geo-chemical and geophysical studies;
- exploratory drilling;
- trenching;
- sampling; AND
- activities in relation to evaluating the technical feasibility and commercial viability of extracting a mineral resource.
3. Measurement After Recognition
After Recognition, an Entity shall APPLY either the ‘Cost Model’ or the ‘Revaluation Model’ to the exploration and evaluation assets.
If the Revaluation Model is applied (EITHER the Model in IAS 16 or the Model in IAS 38) it shall be CONSISTENT with the classification of the assets.
4. Change in Accounting Policies
An entity May change its ‘Accounting Policies’ for exploration and evaluation expenditures 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.
An entity shall JUDGE relevance and reliability using the criteria in IAS 8.
IFRS 6 – Presentation
1. Classification of Exploration and Evaluation Assets
An entity shall CLASSIFY these as tangible or intangible according to the nature of the assets acquired and apply the classification consistently.
2. Re-classification of Exploration and Evaluation Assets
It shall NO longer be classified as such when the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.
These shall be ASSESSED for Impairment, and any impairment loss recognized, before reclassification.
Impairment
1. Recognition and Measurement
These shall be ASSESSED for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount.
When facts and circumstances suggest that the carrying amount exceeds the recoverable amount, an entity shall MEASURE, PRESENT and DISCLOSE any resulting impairment loss in accordance with IAS 36.
2. Specify the Level at Which Exploration and Evaluation Assets are Measured for Impairment
An entity shall DETERMINE an ‘Accounting Policy’ for allocating exploration and evaluation assets to Cash‑generating Units (CGU) or groups of cash‑generating units for the purpose of assessing such assets for impairment.
Each CGU or group of units to which an exploration and evaluation asset is allocated shall NOT be larger than an operating segment determined in accordance with IFRS 8.
IFRS 6 – Disclosure
An Entity shall disclose information that identifies and explains the amounts recognized in its financial statements arising from the ‘Exploration for and Evaluation of Mineral Resources’.
Chartered Accountant (Institute of Chartered Accountants of Pakistan)
Bachelor of Accounting Honours (Asia e University, Malaysia)