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AASB 6 Standards/Accounting & Auditing as made
The Standard specifies the financial reporting for exploration for and evaluation of mineral resources.
Administered by: Treasury
General Comments: When applicable, this Standard supersedes AASB 1022 - Accounting for Extractive Industries - October 1989 and AAS 7 - Accounting for the Extractive Industries - November 1989.
Exempt from sunsetting by the Legislative Instruments Regulations 2004 Sch 3 item 12
Registered 02 Jun 2005
Tabling HistoryDate
Tabled HR08-Feb-2005
Tabled Senate08-Feb-2005
Gazetted 13 Dec 2004
Date of repeal 31 Dec 2015
Repealed by AASB 6 - Exploration for and Evaluation of Mineral Resources - August 2015
Table of contents.
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Obtaining a Copy of this Accounting Standard
CONTENTS
Preface
Reasons for Issuing AASB 6
Main Features of this Standard
Application Date
First-time Application and Comparatives
Main Requirements
Differences between this Standard and AASB 1022
Accounting for other phases of extractive activity operations
Long-term extractive activities project
Comparison with International Pronouncements
AASB 6 and IFRS 6
Compliance with IFRS 6
AASB 6 and IPSASs
aCCOUNTING STANDARD AASB 6
Objective
Application
Scope
Recognition of exploration and evaluation assets
Temporary exemption from AASB 108 paragraphs 11 and 12
Treatment of exploration and evaluation expenditures
Measurement of exploration and evaluation assets
Measurement at recognition
Elements of cost of exploration and evaluation assets
Measurement after recognition
Changes in accounting policies
Presentation
Classification of exploration and evaluation assets
Reclassification of exploration and evaluation assets
Impairment
Recognition and measurement
Specifying the level at which exploration and evaluation assets are assessed for impairment
Disclosure
Effective date of IFRS 6
Transitional Provisions
Appendix A
Defined terms
Additional Australian Defined Terms
Appendix B
Amendments to other Australian Accounting Standards
Differences Between AASB 6 AND AASB 1022
Introduction
Differences
A. Incompatibilities between AASB 1022 and AASB 6
A.1 Scope
A.2 Subsidies and revenue received
B. AASB 1022 is more detailed or restrictive
C. AASB 6 is more detailed or restrictive
C.1 Activities preceding exploration for and evaluation of mineral resources
D. AASB 1022 disclosures are more extensive
E. AASB 6 disclosures are more extensive
E.1 Liability and cash flow disclosures

Accounting Standard

AASB 6

December 2004

 

 

 

 

Exploration for and Evaluation of Mineral Resources

 



Obtaining a Copy of this Accounting Standard

This Standard is available on the AASB website: www.aasb.com.au.

Alternatively, printed copies of this Standard are available for purchase by contacting:

 

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AUSTRALIA

 

 

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COPYRIGHT

© 2004 Commonwealth of Australia

This AASB Standard contains International Accounting Standards Committee Foundation copyright material.  Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source.  Requests and enquiries concerning reproduction and rights for commercial purposes within Australia should be addressed to The Administration Director, Australian Accounting Standards Board, PO Box 204, Collins Street West, Melbourne, Victoria 8007.

All existing rights in this material are reserved outside Australia.  Reproduction outside Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use only.  Further information and requests for authorisation to reproduce for commercial purposes outside Australia should be addressed to the International Accounting Standards Committee Foundation at www.iasb.org.

ISSN 1036-4803


CONTENTS

Preface

Comparison With International Pronouncements

Accounting Standard

AASB 6 Exploration for and Evaluation of Mineral Resources

Paragraphs

Objective                                                                                                           1 – 2

Application                                                                                  Aus2.1 – Aus2.7

Scope                                                                                                                 3 – 5

Recognition of exploration and evaluation assets

Temporary exemption from AASB 108 paragraphs 11 and 12           6 – 7

Treatment of exploration and evaluation
expenditures                                                                     Aus7.1 – Aus7.3

Measurement of exploration and evaluation assets

Measurement at recognition                                                                         8

Elements of cost of exploration and evaluation assets                    9 – 11

Measurement after recognition                                                                  12

Changes in accounting policies                                                         13 – 14

Presentation

Classification of exploration and evaluation assets                       15 – 16

Reclassification of exploration and evaluation assets                            17

Impairment

Recognition and measurement                                                           18 – 20

Specifying the level at which exploration and evaluation assets are assessed for impairment                21 – Aus22.1

Disclosure                                                                                                     23 – 25

Transitional Provisions                                                                    27 – Aus27.1

 

Appendices:

A.  Defined terms                                                                                      Page 20

B.  Amendments to other Australian Accounting Standards            Page 21           

 

Differences BetweeN AASB 6 and AASB 1022                      Page 23

Basis for conclusions on IFRS 6

(available to AASB online subscribers or through the IASB)    

 

Australian Accounting Standard AASB 6 Exploration for and Evaluation of Mineral Resources is set out in paragraphs 1 – Aus27.1 and in Appendix A.  All the paragraphs have equal authority.  Paragraphs in bold type state the main principles.  Terms defined in this Standard are in italics the first time they appear in the Standard.  AASB 6 is to be read in the context of other Australian Accounting Standards, including AASB 1048 Interpretation and Application of Standards, which identifies the UIG Interpretations.  In the absence of explicit guidance, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies.

 


Preface

Reasons for Issuing AASB 6

The Australian Accounting Standards Board (AASB) is implementing the Financial Reporting Council’s policy of adopting the Standards of the International Accounting Standards Board (IASB) for application to reporting periods beginning on or after 1 January 2005.  The AASB’s Standards are being changed to adopt the IASB Standards effective at that date by replacing relevant existing AASB Standards with Australian Standards equivalent to those of the IASB.  The AASB has decided it will continue to issue sector-neutral Standards, that is, Standards applicable to both for-profit and not-for-profit entities, including public sector entities.  Except for Standards that are specific to the not-for-profit or public sectors or that are of a purely domestic nature, the AASB intends to use the IASB Standards as the “foundation” Standards to which it will add material detailing the scope and applicability of a Standard in the Australian environment.  It is intended that additions will be made, where necessary, to broaden the content to cover sectors not addressed by an IASB Standard and domestic, regulatory or other issues.

The IASB defines International Financial Reporting Standards (IFRSs) as comprising:

(a)       International Financial Reporting Standards;

(b)      International Accounting Standards; and

(c)       Interpretations originated by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC).

The Australian equivalents to IFRSs are:

(a)       Accounting Standards issued by the AASB that are equivalent to Standards issued by the IASB, being AASBs 1 – 99 corresponding to the IFRS series and AASBs 101 – 199 corresponding to the IAS series; and

(b)      UIG Interpretations approved by the AASB corresponding to the Interpretations adopted by the IASB, as listed in AASB 1048 Interpretation and Application of Standards.


Main Features of this Standard

Application Date

This Standard is applicable to annual reporting periods beginning on or after 1 January 2005.  To promote comparability among the financial reports of Australian entities, early adoption of this Standard is not permitted.

First-time Application and Comparatives

Application of this Standard will begin in the first annual reporting period beginning on or after 1 January 2005 in the context of adopting all Australian equivalents to IFRSs.  The requirements of AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards, the Australian equivalent of IFRS 1 First-time Adoption of International Financial Reporting Standards, must be observed.  AASB 1 requires prior period information, presented as comparative information, to be restated as if the requirements of this Standard had always applied.  This differs from previous Australian requirements where changes in accounting policies did not require the restatement of the income statement and balance sheet of the preceding period.  However AASB 1 (paragraph 36B) provides an exemption from presenting comparative information that relates to reporting periods beginning before 1 January 2005. 

Main Requirements

This Standard:

(a)           requires Australian entities to apply “area of interest” accounting to their exploration and evaluation expenditures (generally this will enable exploration and evaluation expenditures to be treated in the same manner as they were under AASB 1022 / AAS 7[1] Accounting for the Extractive Industries subject to any impairment testing requirements);

(b)           requires entities recognising exploration and evaluation assets to perform an impairment test on those assets when facts and circumstances suggest that the carrying amount of an asset may exceed its recoverable amount; and

(c)           permits impairment of exploration and evaluation assets to be assessed at a cash-generating unit or group of cash-generating units level.  The level is not to be larger than the lesser of an area of interest or a segment (based on either the entity’s primary or secondary reporting format under AASB 114 Segment Reporting).

Differences between this Standard and AASB 1022

The primary difference between this Standard and the AASB Standard that it supersedes, AASB 1022 Accounting for the Extractive Industries, is that the scope of this Standard is restricted to the treatment of exploration and evaluation expenditures whereas AASB 1022 also dealt with the:

(a)       treatment of development, construction, and restoration costs;

(b)      amortisation of those costs;

(c)       treatment of inventories; and

(d)      revenue recognition.

Generally speaking, the treatment of exploration and evaluation expenditures under this Standard and AASB 1022 will be the same.  This Standard permits an entity to continue following its existing accounting policies for the treatment of exploration and evaluation expenditures, which for an entity that has been applying AASB 1022 will be an accounting policy that is consistent with “area of interest” accounting.  Paragraph 13 of this Standard permits an entity to change its accounting policies for exploration and evaluation expenditures if the change makes the financial report more relevant to the economic decision-making needs of users and no less reliable, or more reliable and no less relevant to those needs.  However, in the interests of retaining comparability among Australian reporting entities, paragraph Aus13.1 requires any change in accounting policies to remain consistent with the “area of interest” accounting requirements that have been prescribed by AASB 1022.

A more detailed description of the differences between this Standard and AASB 1022 accompanies this Standard under the heading “Differences between AASB 6 and AASB 1022”. 

The requirements of the superseded AASB 1022 are essentially the same as AAS 7 Accounting for the Extractive Industries.  Accordingly, there is no separate analysis of the differences between AASB 6 and AAS 7.

Accounting for other phases of extractive activity operations

This Standard is an activities-based Standard, dealing solely with the treatment of exploration and evaluation expenditures.  In contrast, AASB 1022 is an industry-based Standard that also contains requirements and guidance relating to other phases of extractive activity operations.  As AASB 1022 is being superseded by this Standard, entities engaged in other phases of extractive activity operations will also have to apply other Australian Accounting Standards.  Table 1 identifies some of the other Australian Accounting Standards that may need to be applied in accounting for aspects previously addressed by AASB 1022. 

Table 1 – Other aspects previously covered in AASB 1022

Phase of operation / transaction or event

Relevant Standards[2]

Activities that precede exploration for and evaluation of mineral resources[3]

Framework

AASB 116 Property, Plant and Equipment

AASB 138 Intangible Assets

Development and construction costs

AASB 116 Property, Plant and Equipment

AASB 138 Intangible Assets

Amortisation of capitalised costs

AASB 116 Property, Plant and Equipment

Inventories

AASB 102 Inventories

Revenue recognition

AASB 118 Revenue

Restoration costs

AASB 137 Provisions, Contingent Liabilities and Contingent Assets

AASB 116 Property, Plant and Equipment

UIG Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities

 

Long-term extractive activities project

This Standard has been issued to facilitate the introduction of Australian equivalents to IFRSs in respect of the treatment of exploration and evaluation expenditures, pending the completion of a comprehensive project on accounting for extractive activities.

The IASB is currently progressing the comprehensive project which is focusing on the financial reporting of reserves and resources.  The AASB is closely involved with this project.  It is expected that the outcome will be a revised extractive activities standard that will replace this Standard.


Comparison with International Pronouncements

AASB 6 and IFRS 6

AASB 6 is equivalent to IFRS 6 Exploration for and Evaluation of Mineral Resources.  Paragraphs that have been added to this Standard (and do not appear in the text of the equivalent IASB standard) are identified with the prefix “Aus”, followed by the number of the relevant IASB paragraph and decimal numbering.

Compliance with IFRS 6

Entities that comply with the requirements of AASB 6 will simultaneously be in compliance with the requirements of IFRS 6.

AASB 6 and IPSASs

The International Public Sector Accounting Standards (IPSASs) are issued by the Public Sector Committee of the International Federation of Accountants.

There is no specific IPSAS dealing with accounting for exploration and evaluation activities at present.

 

 


aCCOUNTING STANDARD AASB 6

The Australian Accounting Standards Board makes Accounting Standard AASB 6 Exploration for and Evaluation of Mineral Resources under section 334 of the Corporations Act 2001.

 

D.G. Boymal

Dated 9 December 2004

Chair – AASB

 

aCCOUNTING STANDARD AASB 6

Exploration for and Evaluation of Mineral Resources

Objective

1         The objective of this Standard is to specify the financial reporting for the exploration for and evaluation of mineral resources.

2         In particular, the Standard requires:

(a)       limited improvements to existing accounting practices for exploration and evaluation expenditures;

(b)      entities that recognise exploration and evaluation assets to assess such assets for impairment in accordance with this Standard and measure any impairment in accordance with AASB 136 Impairment of Assets; and

(c)       disclosures that identify and explain the amounts in the entity’s financial report arising from the exploration for and evaluation of mineral resources and help users of those financial reports understand the amount, timing and certainty of future cash flows from any exploration and evaluation assets recognised.


Application

Aus2.1          This Standard applies to:

(a)       each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;

(b)       general purpose financial reports of each other reporting entity; and

(c)       financial reports that are, or are held out to be, general purpose financial reports.

Aus2.2          This Standard applies to annual reporting periods beginning on or after 1 January 2005.

Aus2.3          This Standard shall not be applied to annual reporting periods beginning before 1 January 2005.

Aus2.4          The requirements specified in this Standard apply to the financial report where information resulting from their application is material in accordance with AASB 1031 Materiality.

Aus2.5          When applicable, this Standard supersedes:

(a)       AASB 1022 Accounting for Extractive Industries as notified in the Commonwealth of Australia Gazette, No S 338, 30 October 1989; and

(b)       AAS 7 Accounting for the Extractive Industries issued in November 1989.

Aus2.6          AASB 1022 and AAS 7 remain applicable until superseded by this Standard.

Aus2.7          Notice of this Standard was published in the Commonwealth of Australia Gazette No S 507, 13 December 2004.

Scope

3         An entity shall apply the Standard to exploration and evaluation expenditures that it incurs.

4         The Standard does not address other aspects of accounting by entities engaged in the exploration for and evaluation of mineral resources.

5         An entity shall not apply the Standard to expenditures incurred:

(a)       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; and 

(b)      after the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.

Recognition of exploration and evaluation assets

Temporary exemption from AASB 108 paragraphs 11 and 12

6         When developing its accounting policies, an entity recognising exploration and evaluation assets shall apply paragraph 10 of AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors and paragraphs Aus7.1 and Aus7.2 below.

7         Paragraphs 11 and 12 of AASB 108 specify sources of authoritative requirements and guidance that management is required to consider in developing an accounting policy for an item if no Standard applies specifically to that item.  Subject to paragraphs 9 and 10 below, this Standard exempts an entity from applying those paragraphs to its accounting policies for the recognition and measurement of exploration and evaluation assets.

Treatment of exploration and evaluation expenditures

Aus7.1          An entity’s accounting policy for the treatment of its exploration and evaluation expenditures shall be in accordance with the following requirements.  For each area of interest, expenditures incurred in the exploration for and evaluation of mineral resources shall be:

(a)       expensed as incurred; or

(b)      partially or fully capitalised, and recognised as an exploration and evaluation asset if the requirements of paragraph Aus7.2 are satisfied.

An entity shall make this decision separately for each area of interest. 

Aus7.2          An exploration and evaluation asset shall only be recognised in relation to an area of interest if the following conditions are satisfied:

(a)       the rights to tenure of the area of interest are current; and

(b)      at least one of the following conditions is also met:

(i)         the exploration and evaluation expenditures are expected to be recouped through successful development and exploitation of the area of interest, or alternatively, by its sale; and

(ii)        exploration and evaluation activities in the area of interest have not at the reporting date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing.

Aus7.3          An area of interest refers to an individual geological area whereby the presence of a mineral deposit or an oil or natural gas field is considered favourable or has been proved to exist.  It is common for an area of interest to contract in size progressively, as exploration and evaluation lead towards the identification of a mineral deposit or an oil or natural gas field, which may prove to contain economically recoverable reserves.  When this happens during the exploration for and evaluation of mineral resources, exploration and evaluation expenditures are still included in the cost of the exploration and evaluation asset notwithstanding that the size of the area of interest may contract as the exploration and evaluation operations progress.  In most cases, an area of interest will comprise a single mine or deposit or a separate oil or gas field.

Measurement of exploration and evaluation assets

Measurement at recognition

8         Exploration and evaluation assets shall be measured at cost at recognition.

Elements of cost of exploration and evaluation assets

9         An entity shall determine a policy specifying which expenditures are recognised as exploration and evaluation assets and apply the policy consistently.  In making this determination, an entity considers the degree to which the expenditure can be associated with finding specific mineral resources.  The following are examples of expenditures that might be included in the initial measurement of exploration and evaluation assets (the list is not exhaustive):

(a)       acquisition of rights to explore;

(b)      topographical, geological, geochemical and geophysical studies;

(c)       exploratory drilling;

(d)      trenching;

(e)       sampling; and

(f)       activities in relation to evaluating the technical feasibility and commercial viability of extracting a mineral resource.

Aus9.1          In accordance with paragraph 9, where an entity recognises exploration and evaluation assets, direct and indirect costs associated with the exploration for and evaluation of mineral resources and which specifically relate to an area of interest are allocated to that area of interest.  In making this allocation, no distinction is drawn between costs incurred within the entity and the cost of services performed by outside contractors or consultants on behalf of the entity. 

Aus9.2          The costs of acquiring leases or other rights of tenure in the area of interest are included in the cost of the exploration and evaluation asset if they are acquired as part of the exploration for and evaluation of mineral resources. 

Aus9.3          Indirect costs that are included in the cost of an exploration and evaluation asset include, among other things, charges for depreciation of equipment used in exploration and evaluation activities.

Aus9.4          General and administrative costs are allocated to, and included in, the cost of an exploration and evaluation asset, but only to the extent that those costs can be related directly to operational activities in the area of interest to which the exploration and evaluation asset relates.  In all other cases, these costs are expensed as incurred.  For example, general and administrative costs such as directors’ fees, secretarial and share registry expenses, and salaries and other expenses of general management are recognised as expenses when incurred since they are only indirectly related to operational activities.

10       Expenditures related to the development of mineral resources shall not be recognised as exploration and evaluation assets.  The Framework for the Preparation and Presentation of Financial Statements and AASB 138 Intangible Assets provide guidance on the recognition of assets arising from development.

11       In accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets an entity recognises any obligations for removal and restoration that are incurred during a particular period as a consequence of having undertaken the exploration for and evaluation of mineral resources.

Measurement after recognition

12       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 AASB 116 Property, Plant and Equipment or the model in AASB 138), it shall be consistent with the classification of the assets (see paragraph 15). 

Changes in accounting policies 

13       An entity may change its accounting policies for exploration and evaluation expenditures if the change makes the financial report 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 AASB 108.

Aus13.1        Notwithstanding paragraph 13, any change in an entity’s accounting policy for exploration and evaluation expenditures shall also remain in accordance with paragraphs Aus7.1 and Aus7.2.

14       To justify changing its accounting policies for exploration and evaluation expenditures, an entity shall demonstrate that the change brings its financial report closer to meeting the criteria in AASB 108, but the change need not achieve full compliance with those criteria.

Presentation

Classification of exploration and evaluation assets

15       An entity shall classify exploration and evaluation assets as tangible or intangible according to the nature of the assets acquired and apply the classification consistently.

16       Some exploration and evaluation assets are treated as intangible (e.g. drilling rights), whereas others are tangible (e.g. vehicles and drilling rigs).  To the extent that a tangible asset is consumed in developing an intangible asset, the amount reflecting that consumption is part of the cost of the intangible asset.  However, using a tangible asset to develop an intangible asset does not change a tangible asset into an intangible asset.

Reclassification of exploration and evaluation assets

17       An exploration and evaluation asset shall no longer be classified as such when the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.  Exploration and evaluation assets shall be assessed for impairment, and any impairment loss recognised, before reclassification.

Impairment

Recognition and measurement

18       Exploration and evaluation assets 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 AASB 136, except as provided by paragraph 21 below.

19       For the purposes of exploration and evaluation assets only, paragraph 20 of this Standard shall be applied rather than paragraphs 8-17 of AASB 136 when identifying an exploration and evaluation asset that may be impaired.  Paragraph 20 uses the term ‘assets’ but applies equally to separate exploration and evaluation assets or a cash-generating unit.

20       One or more of the following facts and circumstances indicate that an entity should test exploration and evaluation assets for impairment (the list is not exhaustive):

(a)       the period for which the entity has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed;

(b)      substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned;

(c)       exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area;

(d)      sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.

           In any such case, or similar cases, the entity shall perform an impairment test in accordance with AASB 136.  Any impairment loss is recognised as an expense in accordance with AASB 136.

Specifying the level at which exploration and evaluation assets are assessed for impairment

21       An entity shall determine an accounting policy for allocating exploration and evaluation assets to cash-generating units or groups of cash-generating units for the purpose of assessing such assets for impairment.  Each cash-generating unit or group of units to which an exploration and evaluation asset is allocated shall not be larger than a segment based on either the entity’s primary or secondary reporting format determined in accordance with AASB 114 Segment Reporting.

22       The level identified by the entity for the purposes of testing exploration and evaluation assets for impairment may comprise one or more cash-generating units.

Aus22.1        Notwithstanding paragraphs 21 and 22, the level identified by the entity for the purposes of testing exploration and evaluation assets for impairment shall be no larger than the area of interest to which the exploration and evaluation asset relates. 

Disclosure

23       An entity shall disclose information that identifies and explains the amounts recognised in its financial report arising from the exploration for and evaluation of mineral resources.

24       To comply with paragraph 23, an entity shall disclose:

(a)       its accounting policies for exploration and evaluation expenditures including the recognition of exploration and evaluation assets; and

(b)      the amounts of assets, liabilities, income and expense and operating and investing cash flows arising from the exploration for and evaluation of mineral resources.

Aus24.1        In addition to the disclosure required by paragraph 24(b), an entity that recognises exploration and evaluation assets for any of its areas of interest shall, in disclosing the amounts of those assets, provide an explanation that recoverability of the carrying amount of the exploration and evaluation assets is dependent on successful development and commercial exploitation, or alternatively, sale of the respective areas of interest. 

25       An entity shall treat exploration and evaluation assets as a separate class of assets and make the disclosures required by either AASB 116 or AASB 138 consistent with how the assets are classified.

Effective date of IFRS 6

26       [Deleted by the AASB]

Transitional Provisions

27       If it is impracticable to apply a particular requirement of paragraph 18 to comparative information that relates to annual reporting periods beginning before 1 January 2005, an entity shall disclose that fact.  AASB 108 explains the term ‘impracticable’.

Aus27.1        For annual reporting periods beginning before 1 January 2006, an entity applying the Standard shall disclose the fact that it is applying the Standard, being the Australian equivalent to IFRS 6.


Appendix A

Defined terms

This appendix is an integral part of AASB 6.

exploration and evaluation assets

Exploration and evaluation expenditures recognised as assets in accordance with the entity’s accounting policy.

exploration and evaluation expenditures

Expenditures incurred by an entity in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.

exploration for and evaluation of mineral resources

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. 

 

Additional Australian Defined Terms

area of interest

An individual geological area which is considered to constitute a favourable environment for the presence of a mineral deposit or an oil or natural gas field, or has been proved to contain such a deposit or field. 

economically recoverable reserves

The estimated quantity of product in an area of interest that can be expected to be profitably extracted, processed and sold under current and foreseeable economic conditions. 

 

 


Appendix B

Amendments to other Australian Accounting Standards

The following amendments are made by AASB 2004-1 Amendments to Australian Accounting Standards.  In this appendix, new text is underlined and deleted text is struck through.

B1        In AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards, a heading and paragraph 36B are added as follows:

Exemption from the requirement to provide comparative disclosures for AASB 6

36B   In its first Australian-equivalents-to-IFRSs financial report, an entity that adopts Australian equivalents to IFRSs before 1 January 2006 need not present the disclosures required by AASB 6 Exploration for and Evaluation of Mineral Resources for comparative periods.

B2        In AASB 116 Property, Plant and Equipment, paragraph 3 is amended to read as follows:

3.      This Standard does not apply to:

(a)      property, plant and equipment classified as held for sale in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations;

(b)     biological assets related to agricultural activity (see AASB 141 Agriculture); or

(c)      the recognition and measurement of exploration and evaluation assets (see AASB 6 Exploration for and Evaluation of Mineral Resources); or

(dc)   mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.

However, this Standard applies to property, plant and equipment used to develop or maintain the assets described in (b) and -(cd).

B3        In AASB 138 Intangible Assets, paragraph 2 is amended to read as follows:

2.      This Standard shall be applied in accounting for intangible assets, except:

(a)      intangible assets that are within the scope of another Australian Accounting Standard;

(b)      financial assets, as defined in AASB 139 Financial Instruments: Recognition and Measurement;

(c)      the recognition and measurement of exploration and evaluation assets (see AASB 6 Exploration for and Evaluation of Mineral Resources); and

(dc)    mineral rights and expenditure on the exploration for, or development and extraction of, minerals, oil, natural gas and similar non-regenerative resources.


Differences Between
AASB 6 AND AASB 1022

This analysis of differences accompanies, but is not part of, AASB 6.

This section identifies differences between AASB 1022 Accounting for the Extractive Industries and AASB 6 Exploration for and Evaluation of Mineral Resources under the following headings.

A:            Incompatibilities between AASB 1022 and AASB 6

B:            AASB 1022 is more detailed or restrictive

C:            AASB 6 is more detailed or restrictive

D:            AASB 1022 disclosures are more extensive

E:             AASB 6 disclosures are more extensive

The analysis of differences should not be taken as providing an exhaustive list of differences.

Introduction

AASB 6 deals with the treatment of expenditures associated with the exploration for and evaluation of mineral resources and, in particular, permits entities to develop an accounting policy for the treatment of these expenditures without having to specifically consider the requirements of paragraphs 11 and 12 of AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors (sometimes referred to as the “AASB 108 hierarchy”).  AASB 6 requires the accounting policy to be consistent with the “area of interest” approach prescribed by AASB 1022. 

AASB 6 also requires any capitalised exploration and evaluation expenditures (known as ‘exploration and evaluation assets’) to be tested for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount.  The facts and circumstances specified by AASB 6 are broadly consistent with the factors used to determine whether or not an entity can continue to recognise its capitalised exploration and evaluation expenditures under AASB 1022.  Further, the level at which exploration and evaluation assets are to be tested for impairment is to be no larger than the area of interest to which the exploration and evaluation asset relates.  Consequently, the recognition and measurement requirements for capitalised exploration and evaluation expenditures are largely equivalent under AASB 6 and AASB 1022. 

The primary difference between AASB 6 and AASB 1022 relates to the scope of the Standards.  AASB 6 is an activity-based Standard that relates only to the exploration for and evaluation of mineral resources.  In contrast, AASB 1022 is an industry-based Standard that applies to all phases of extractive activity operations as well as specifying the treatment of inventory and sales revenue. 

This analysis of differences only considers the nature and extent of differences in the treatment of exploration and evaluation expenditures.  It does not address differences that may arise from treatments of aspects dealt with in other Australian equivalents to International Financial Reporting Standards that are within the scope of AASB 1022.

AASB 6.12 specifically mentions that, after initial recognition, exploration and evaluation assets can be measured using the cost or revaluation models in AASB 116 Property, Plant and Equipment or AASB 138 Intangible Assets (see paragraphs 31-42 of AASB 116 and paragraphs 72-84 of AASB 138).  Subsequent measurement is not specifically addressed in AASB 1022, but measurement using a cost or revaluation model is permitted (also see AASB 1041 Revaluation of Non-Current Assets).

Differences

A.        Incompatibilities between AASB 1022 and AASB 6

A.1          Scope

The scope of AASB 1022 is more expansive than AASB 6.  AASB 6 relates only to the treatment of expenditures incurred in the exploration for and evaluation of mineral resources whereas the scope of AASB 1022 encompasses extractive activities more generally and includes the treatment of development and construction expenditures and the treatment of inventories and sales revenue.  In conjunction with AASB 6, entities must therefore apply other Australian Accounting Standards to determine the treatment of these other aspects.  (Some of the Australian Accounting Standards that should be considered are identified in the Preface to this Standard.)

A.2          Subsidies and revenue received

AASB 1022.22 requires an entity that receives amounts (including subsidies) that are in the nature of a reimbursement or recoupment of previously incurred exploration and evaluation expenditures to set-off those amounts against those expenditures.  Although not specifically addressed by AASB 6, this practice of setting-off is not consistent with AASB 120 Accounting for Government Grants and Disclosure of Government Assistance (paragraph 24).

B.        AASB 1022 is more detailed or restrictive

None noted.

C.        AASB 6 is more detailed or restrictive

C.1          Activities preceding exploration for and evaluation of mineral resources

AASB 6 paragraph 5(a) and the definition of ‘exploration for and evaluation of mineral resources’ draw a distinction between exploration activities and pre-exploration activities.  ‘Exploration for and evaluation of mineral resources’ is defined as “the search for mineral resources…after the entity has obtained legal rights to explore in a specific area…”.  In contrast, AASB 1022 defines exploration without specific reference to the existence or otherwise of legal rights to explore.  As expenditures incurred before the exploration for and evaluation of mineral resources are outside the scope of AASB 6, entities must therefore apply other Australian Accounting Standards or the Framework to determine the treatment of these expenditures.  As such, these expenditures may be required to be expensed as incurred. 

D.        AASB 1022 disclosures are more extensive

None noted.

E.         AASB 6 disclosures are more extensive

E.1          Liability and cash flow disclosures

AASB 6 requires the disclosure of liability amounts[4] and operating and investing cash flows[5] in addition to the disclosure of asset, expense and income amounts that are required by both AASB 6 and AASB 1022.

 



[1]      Unless otherwise stated, other references to AASB 1022 are considered to also be a reference to AAS 7.

[2]      Some issues related to extractive activities are not specifically dealt with in other Australian Accounting Standards.  Consequently, entities may need to refer to the AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors hierarchy in determining their accounting policies in those cases. 

[3]      Paragraphs BC10 - BC13 of the Basis for Conclusions to IFRS 6 Exploration for and Evaluation of Mineral Resources provide some guidance on the treatment of expenditures incurred before the exploration for and evaluation of mineral resources. 

 

 

[4]      Although AASB 1022 does not, in general terms, require the disclosure of liability amounts, paragraph 40(a) deals with the treatment of restoration costs and obligations.

[5]      Australian Stock Exchange listing rules 4.7B and 5.3A, however, already requires cash flow information to be disclosed.