IFRS 6: Exploration for and Evaluation of Mineral Resources

OBJECTIVE
 
The objective of this IFRS is to deal with the financial reporting requirements for entities in the mineral extractive industry.
 
Exploration for and evaluation of mineral resources is the search for mineral resources (e.g. oil, natural gas and similar non-regenerative resources) after the entity has obtained legal rights to explore in a specific area. 
 
In summary, IFRS 6 permits an entity to develop an accounting policy for exploration and evaluation assets without specifically considering the requirements of paragraphs 11 and 12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. As a result of this requirement in IFRS 6 an entity can still continue to use the accounting policies it adopted immediately before adopting IFRS. 
 
Where circumstances change which may give rise to the carrying amount of the exploration and evaluation assets being in excess of recoverable amount, IFRS 6 requires an impairment test to be undertaken. The actual recognition of impairment does vary in IFRS 6 but once impairment has been identified, IFRS 6 requires the entity to measure the impairment in accordance with IAS 36 Impairment of Assets.
 

The IFRS also requires that an entity determine an accounting policy for allocation of exploration and evaluation assets to cash-generating units or groups of cash-generating units for the purposes of impairment testing.

About the author:

Steve Collings FMAAT ACCA DipIFRS is Audit Manager at Leavitt Walmsley Associates www.lwaltd.com. Read all of Collings's analyses of the International Financial Reporting Standards.

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