Extractive industries faces complexities in determining the accounting policies in order to apply to expenditures it incurs that are outside of the scope of IFRS 6. The accounting policies applicable under IFRSs, which include IFRSs for other aspects of the extractive industries activities should be determined in accordance with paragraphs 7 to 12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. That means:
1. If a transaction, other event or condition is specifically covered by an existing IFRS, that standard should be applied in determining the appropriate accounting policy. For example, the acquisition of equipment to be used in the extraction of mineral resources is not covered by IFRS 6 because that extraction occurs after the technical feasibility and commercial viability of extracting that mineral resource is demonstrated. However, acquisition of property, plant and equipment is addressed by IAS 16 Property, Plant and Equipment so IAS 16 should be applied in arriving at the accounting policy to apply to the acquisition of that plant and equipment.
2. If there is no specific IFRS that applies to a transaction, other event or condition, the entity’s management must apply its judgement in determining an appropriate accounting policy to result in information that is:
(a) relevant to the economic decision-making needs of users; and
(b) reliable, in that the financial statements:
(i) represents faithfully the financial position, financial performance and cash flows of the entity;
(ii) reflects the economic substance of transactions, other events and conditions, and not merely the legal form;
(iii) is neutral, that is, free from bias;
(iv) is prudent; and
(v) is complete in all material respects.
3. In applying this judgement, management should consider the requirements and guidance in IFRSs dealing with similar and related issues, followed by the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework for the Preparation and Presentation of Financial Statements.
4. Management may also consider the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature and accepted industry practices, to the extent that these do not conflict with IFRSs or the Framework.
The difficulty for entities in the extractive industries is that mineral resources are excluded from the scope of a number of standards including:
• IAS 2 Inventories
• IAS 16 Property, Plant and Equipment
• IAS 17 Leases
• IAS 18 Revenue
• IAS 38 Intangible Assets
• IAS 40 Investment Properties
• IFRIC Interpretation 4 Determining whether an Arrangement contains a Lease.
This is further complicated by the fact that these scope exclusions are not complete. For example,IAS 16 does not apply to ‘the recognition and measurement of exploration and evaluation assets’ (i.e. they are covered by IFRS 6) or ‘mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources’. However, it does apply to property, plant and equipment used to develop or maintain E&E assets, mineral rights and mineral reserves.