Introduction

The aim of this standard is to specify the financial reporting requirements for the exploration for and evaluation of mineral resources.

In particular, this IFRS requires:

• Limited improvements to current accounting policies and practices related to exploration and evaluation expenditures.
• Entities that recognize and record assets used for exploration and evaluation of minerals, to assess such assets for impairment in compliance with the requirements of this IFRS and measure any resulting impairment expense in accordance with the requirements of IAS 36 Impairment of Assets.
• Disclosures that not only identify but also provides an explanation of the amounts presented in the financial statements resulting from the activities involving exploration and evaluation of resources.

Scope

This standard is basically applicable to expenditures incurred by an entity for the exploration and evaluation of mineral resources.

However, this standard does not cover the other accounting aspects of organizations that are involved in exploration for and evaluation of the mineral resources.

In addition, an entity should not apply this standard to expenses that have been incurred:

• Before the exploration for and evaluation of resources such as expenses incurred by the entity before it obtains legal rights to explore a particular area.
• After the technical and commercial feasibility of extracting a resource are demonstrable.

Relevant Definitions

Exploration and Evaluation Assets

All expenditures related to exploration and evaluation that have been recognized as assets in accordance with the accounting policy developed by an entity.

Exploration and Evaluation Expenditures

Expenditures that have been incurred by an entity for exploration for and evaluation of mineral resources before the commercial viability and technical feasibility of extracting a mineral resource such as oil or natural gas are demonstrable.

Exploration and Evaluation of Mineral Resources

The search for mineral resources, such as natural gas, oil, minerals, and other similar resources after the entity has acquired the legal rights for exploring a particular area, as well as determining the commercial viability and technical feasibility of extracting a mineral resource.

Accounting Policies for Exploration for and Evaluation of Mineral Resources

IFRS 6 allows an entity to develop an accounting policy to recognize expenditures incurred on activities involving exploration for and evaluation of resources, as assets without taking into account the requirements specified in paragraphs 11 and 12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Therefore, any entity adopting IFRS 6 may continue to use the accounting policies that were implemented immediately before the adoption of the IFRS.

This standard also permits entities to make changes to their accounting policies for exploration and evaluation expenditures only if the changes make the financial statements more relevant to their users and no less reliable. An entity should judge reliability and relevance using the criteria specified in IAS 8.

Recognition and Measurement of Assets

The assets that are used for exploration for and evaluation of mineral resources should initially be measured at cost.

The following are some examples of expenditures that may be included in the measurement of evaluation and exploration assets at the time of their recognition:

• Obtaining legal rights to explore
• Geographical, topographical, geophysical, and geochemical studies
• Exploratory drilling
• Trenching and Sampling
• Activities related to the evaluation of the technical and commercial aspects of extracting a mineral resource

However, expenditures incurred for developing mineral resources should not be recognized as evaluation and exploration assets. IAS 38 Intangibles and the conceptual framework for financial reporting provides guidance on how to recognize and report assets that arise due to development.

In compliance with the requirements of IAS 37 Provisions, Contingent Liabilities, and Contingent Assets, an entity recognizes any obligation for any kind of restoration and removal during a specific period as a direct consequence of conducting activities such as exploration for and evaluation of mineral resources.

After initial recognition, an entity should use either the cost or revaluation model for subsequent measurement of the evaluation and exploration assets. If the revaluation model is used (either the model mentioned in IAS 16 Property, Plant, and Equipment or the one specified in IAS 38) then it is important to ensure that it is consistent with the classification of the assets for which it is being used.

Presentation

Classification of Assets

An entity should classify the assets that have been acquired for exploration for and evaluation of mineral resources either as tangible or intangible depending upon their nature. Some of these assets are treated as tangible such as drilling rigs and vehicles, whereas others are treated as intangible like drilling rights.

In some cases, a tangible asset is used in the development of an intangible asset. The amount reflecting the use of the tangible asset in the development of an intangible asset is part of the cost of that intangible asset.

Reclassification of Assets

An exploration and evaluation asset should no longer be classified as such when the commercial viability and technical feasibility of extracting a mineral resource are demonstrable.

Impairment

Exploration and evaluation assets should be assessed/ evaluated for impairment when circumstances suggest that the carrying value of the said assets may exceed their recoverable value. In such circumstances, an entity should measure, record, and disclose any resulting impairment loss in compliance with the requirements of IAS 36, except as provided in the paragraph below.

An entity should develop an accounting policy for allocating assets used for exploration and evaluation to cash‑generating units (CGIs) or groups of CGIs for the sole purpose of examining such assets for any impairment.

Disclosures

An entity should disclose the following:

• Information explaining the amounts recognized in its financial reports arising from the exploration for and evaluation of mineral resources.
• Accounting policies devised for exploration and evaluation expenditures including the recognition of these expenditures as assets.

The amounts of income, expenses, assets, and liabilities, and investing and operating cash flows arising from activities involving exploration for and evaluation of mineral resources.