This includes continuing to use recognition and measurement practices that are part of those accounting policies. There was a lack of guidance prior to this IFRS Standard, and where national standards did exist, the accounting practices were diverse, and a number were used throughout the world to account for the costs involved in exploration and extraction. Scope 422. This site uses cookies to provide you with a more responsive and personalised service. If a discovery is not made, the expenditure is charged as an expense. A principal purpose of IFRS 6 is to specify the circumstances in which entities should test exploration and evaluation costs for impairment, and when to require disclosure of information about such assets. Example: rent-free period. The change must result in a policy that is more relevant and no less reliable, or more reliable and no less relevant, than the previous policy. The classification as ‘tangible’ or ‘intangible’, established during the exploration phase, should be continued through to the development and production phases. Exempt from requirements of IAS 8 to look to other IFRSs on similar and related issues AND definitions, recognition criteria and measurement concepts in the Framework when developing accounting policy for E&E assets. IFRS 6 specifies some aspects of the financial reporting for costs incurred for exploration for and evaluation of mineral resources (for example, minerals, oil, natural gas and similar non-regenerative resources), as well as the costs of determination of the technical feasibility and commercial viability of extracting the mineral resources. Fair Value Revaluations. This means that the fundamental principal of capitalisation of exploration costs, used by the majority of mining entities, still remains. Key differences between IFRS 9 and IAS 39 are summarised below: Classification and measurement of financial assets IFRS 9 replaces the rules based model in IAS 39 with an approach which bases classification and measurement on the IFRS 6 Exploration for and Evaluation of Mineral Resources has the effect of allowing entities adopting the standard for the first time to use accounting policies for exploration and evaluation assets that were applied before adopting IFRSs. The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Examples with solutions 427. In your second example, you are correct. IFRS 6 is not currently on the work plan of the IASB. Non-current assets and disposal groups held for sale 422. A Entities are required to change accounting policy for expenditure if the change results in more useful information The IASB accepted these arguments and therefore issued IFRS 6. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox. IFRS 6 APPLIES AFTER THE ENTITY HAS OBTAINED LEGAL RIGHTS TO EXPLORE IN A SPECIFIC AREA, BUT BEFORE EXTRACTION HAS BEEN DEMONSTRATED TO BE BOTH TECHNICALLY FEASIBLE AND COMMERCIALLY VIABLE. These Illustrative Examples accompany IFRS 17 Insurance Contracts (issued May 2017; see separate booklet) and are issued by the International Accounting Standards Board (the Board). This is a list of the International Financial Reporting Standards (IFRSs) and official interpretations, as set out by the IFRS Foundation.It includes accounting standards either developed or adopted by the International Accounting Standards Board (IASB), the standard-setting body of the IFRS Foundation.. The costs capitalised under IFRS 6 might not meet the Conceptual Framework definition of an asset because, for example, the capitalisation criteria followed might not require the demonstration of present economic resource. It would have forced them to fall back to the IASB Conceptual Framework, or to standards issued by their respective national standard setters. What is an entity required to consider when deciding on its accounting policies for exploration and evaluation activities? The entity’s right to explore in an area has expired, or will expire in the near future, without renewal. IFRS 6 allows entities using quite different accounting policies to all claim adherence to the standard, effectively exempting them from applying the Conceptual Framework. Each word should be on a separate line. The global body for professional accountants, Can't find your location/region listed? On 31 January 2005, Deloitte's IFRS Global Office published a special edition of our IAS Plus Newsletter titled IFRS 6 Exploration for and Evaluation of Mineral Resources. However, there are many other differences between US GAAP and IFRS which will be covered in this article going forward. A decision has been made to discontinue exploration and evaluation in an area because of the absence of commercial reserves. No further exploration or evaluation is planned or budgeted for. IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. hyphenated at the specified hyphenation points. At one end, IFRS 6®, Exploration for and evaluation of mineral resources has introduced certain issues for the industry, and, at the other, IFRS Standards is shifting the boundaries of cash-generating units down to the level of the petrol station or smallest group of retailing assets under IAS 36®, Impairment of assets. B Entities can change accounting policies as long as the new policy results in information that is relevant and reliable The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. [IFRS 6.Appendix A]. However, some companies have used the ‘full cost’ approach, where all costs are capitalised. Assets should be tested for impairment if the carrying amount of the asset may not be recoverable. If the Conceptual Framework or IAS 36 was applied to these entities, then no assets would ever be recognised. Basically, the entity can retain the accumulated cost as an exploration asset until there is sufficient information to determine whether there will be commercial cash flows or not. Example … Example 1: Lease accounting in IFRS 16. 2. Please visit our global website instead. D An entity would not be permitted to change accounting policy unless there is a new or revised standard that replaces the existing requirements in IFRS 6. 13.4 Consequential amendments to other IFRS requirements 341 13.5 First-time adoption 342 Guidance referenced 344 Detailed contents 345 Index of examples 348 Index of KPMG insights 355 About this publication 363 Keeping in touch 364 Acknowledgments 366 Reference • Understanding IFRS Fundamentals, Nandakumar Ankarath, Kalpesh J. Mehta,Dr. Below is the index of all IFRS calculation examples available on IFRScommunity.com that come with an illustrative excel file: IFRS 2 excel examples: share-based payment with service vesting condition and market condition; share-based payment with non-market … IFRS 6 was issued in December 2004 and applies to annual periods beginning on or after 1 January 2006. Specifically: An entity treats exploration and evaluation assets as a separate class of assets and make the disclosures required by either IAS 16 Property, Plant and Equipment or IAS 38 Intangible Assets consistent with how the assets are classified. Please allow me to further clarify. Exploration for and evaluation of mineral resources means the search for mineral resources, including minerals, oil, natural gas and similar non-regenerative resources after the entity has obtained legal rights to explore in a specific area, as well as the determination of the technical feasibility and commercial viability of extracting the mineral resource. Page 1 of 6 IFRS 9 EXAMPLES AND EXERCISES Acknowledgement This material is based on IFRS 9 (published by IASB) and Get ready for IFRS 9 (published by Grant Thornton) Required For Examples 1 to 7, determine the objective of the business model. A policy must: Changes made to an entity’s accounting policy for exploration and extraction assets can only be made if the result is closer to the principles of the Conceptual Framework. Example … IFRS 6 permits entities to continue to use their existing accounting policies, provided they comply with paragraph 10 of IAS 8®, Accounting policies, changes in accounting estimates and errors – that is they result in information which is relevant and reliable. IFRS 6 makes limited changes to existing practice. Please visit our global website instead, Can't find your location listed? Answers: 1(d), 2(c), 3(a), Virtual classroom support for learning partners, Diploma in International Financial Reporting, IFRS 6, exploration for and evaluation of mineral resources, be relevant to the decision-making needs of users. This IFRS in Practice sets out practical guidance and examples about the application of key aspects of IFRS 9. During the preparatory works, ABC discovered that the operating lease contract related to a machine might require some adjustments. These included capitalising the costs, or writing them off in the same way as research expenses. Examples of better disclosure… IFRS 16 Thematic Review (September 2020) Executive summary Descriptions of judgements made by management in the application of the company’s accounting policy were absent or inadequate. IFRS 16 Leases contains detailed guidance on how to account for lease modifications. C The absence of budgeted or planned substantive expenditure on further exploration and evaluation activities in the specific area IFRS is intended to be applied by profit-orientated entities. Once entered, they are only Treatment of revenue recognition is one of the few important differences between US GAAP and IFRS systems. IFRS 5 Non-current Assets Held for Sale and Discontinued Operations 421. Is an entity ever required or permitted to change its accounting policy for exploration and evaluation expenditure? Thank you for contacting LeaseQuery with your questions. IFRS. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets (right-of-use) and liabilities for All leases with a term of more than 12 months ( unless the underlying asset is of low value ). Introduction and overview 421. Before reclassification, the assets should be tested for impairment. A Lack of sufficient data to determine whether the carrying amount of the exploration and evaluation asset is likely to be recovered in full from successful development or by sale It also modifies impairment testing of exploration and evaluation assets by introducing different impairment indicators and allowing the carrying amount to be tested at an aggregate level (not greater than a segment). [IFRS 6.25], IFRS 6 requires disclosure of information that identifies and explains the amounts recognised in its financial statements arising from the exploration for and evaluation of mineral resources, including: [IFRS 6.23–24]. IFRS allows revaluation of the following assets to fair value if fair value can … Assets recognised in respect of licences and surveys should therefore be classified as intangible assets. Objective. C Recent pronouncements of standard-setting bodies, and accepted industry practices This is similar to IFRS 4, Insurance Contracts. 1The objective of this IFRS is to specify the financial reporting for the exploration for and evaluation of mineral resources.. 2In particular, the IFRS requires: (a)limited improvements to existing accounting practices for exploration and evaluation expenditures. By using this site you agree to our use of cookies. Example 1 An entity holds investments to collect their contractual cash flows. Please read, International Financial Reporting Standards, IFRS 6 Exploration for and Evaluation of Mineral Resources, European Union formally adopts updated references to the Conceptual Framework, AcSB updates research on extractive industries, 17th ESMA enforcement decisions report released, 16th ESMA enforcement decisions report released, IVSC explores extractive industry valuations, EFRAG endorsement status report 9 December 2019, Deloitte comment letter on DP/2010/1 'Extractive Activities', IAS Plus newsletter - Special Global Edition – IFRS 6 Exploration for and Evaluation of Mineral Resources, Extractive activities — Exploration for and evaluation of mineral resources, Extractive activities — Comprehensive project, Project on extractive industries carried over from IASC, Short-term project split off from comprehensive project, Effective for annual periods beginning on or after 1 January 2006, Amended Basis for Conclusions to IFRS 6 only, Entities recognising exploration and evaluation assets are required to perform an impairment test on those assets when specific facts and circumstances outlined in the standard indicate an impairment test is required. T.P. The costs capitalised under IFRS 6 might not meet the Conceptual Framework definition of an asset because, for example, the capitalisation criteria followed might not require the demonstration of present economic resource. Depreciation and amortisation is not calculated for the assets because the economic resource that the assets represent are not consumed until the production phase. An entity should develop a policy for allocating these assets to groups of cash generating units (CGUs) and apply that policy consistently. Model IFRS statements These are illustrative IFRS financial statements of a listed company, prepared in accordance with International Financial Reporting Standards. IAS 36 specifies that a CGU is the smallest unit for which independent cash flows can be identified. the amounts of assets, liabilities, income and expense and operating and investing cash flows arising from the exploration for and evaluation of mineral resources. Exploration and evaluation expenditure might therefore be capitalised earlier than would otherwise be the case under the Conceptual Framework. Short example of a similar situation: Under IAS 18, many telecom operators provided free handsets to customers and treated them as “marketing costs”, or costs to obtain a client. Which of the following facts or circumstances would not trigger a need to test an evaluation and exploration asset for impairment? Sufficient data exists to indicate that the book value will not be fully recovered from future development and production. [IFRS 6.Appendix A], Exploration and evaluation expenditures are expenditures incurred in connection with the exploration and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource is demonstrable. [IFRS 6.18], its accounting policies for exploration and evaluation expenditures including the recognition of exploration and evaluation assets. 6 PwC | IFRS overview 2019 Accounting principles and applicability of IFRS The IASB has the authority to set IFRS and to approve interpretations of those standards. IFRS 6 effectively modifies the application of IAS 36 Impairment of Assets to exploration and evaluation assets recognised by an entity under its accounting policy. Subsequently, cost or the revaluation model, as described in IAS 16 and IAS 38. These entities' financial statements give information 1. These examples also illustrate the tagging of new elements added to the IFRS Taxonomy 2019 as a result of the analysis of common reporting practice on IFRS 13 Fair Value Measurement (see Example 15) and general improvements (see Examples 7, 8 and 17) . IFRS 6 Exploration for and Evaluation of Mineral Resources provides guidance on accounting for exploration and evaluation expenditures, including the recognition of exploration and evaluation assets. 2. 3. Example: Operating lease in the lessee’s accounts under IFRS 16 ABC, the manufacturing company, needs to adopt the new standard IFRS 16 Leases in the reporting period ending 31 December 2019. Recognised exploration and evaluation assets should be classified as either tangible or intangible assets under IFRS 6. BC67-BC81) Investment contracts with discretionary participation features (paragraphs 4(b) and 71 of IFRS … ... For Example: A construction contract priced in foreign currency. IFRS 6 has the effect of allowing entities adopting the standard for the first time to use accounting policies for exploration and evaluation assets that were applied before adopting IFRSs. 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