IFRS 6 Exploration and Evaluation of Mineral Resources
An entity applies IFRS 6 in accounting for exploration and evaluation expenditures it incurs on mineral resources except for the costs incurred before the entity obtains the legal rights to explore and the costs incurred after technical feasibility and commercial viability of the resources has been demonstrated.
IFRS 6 requires management to apply their judgement in formulating accounting policy for recognizing exploration and evaluation assets which results in information which is relevant and reliable. It exempts the entity from the requirements to refer to IFRS standards dealing with similar and related issues and the Conceptual Framework, and to pronouncements issued by other standard-setting bodies.
Measurement of exploration and evaluation assets
An entity shall recognize the exploration and evaluation assets initially at cost and subsequently by applying either the cost model of the revaluation model (under either IAS 16 or IAS 38).
Costs which may be capitalized include costs related to “(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.” However, this list is not exhaustive.
Costs incurred after technical feasibility has been determined is accounted for under IAS 38 Intangible Assets and the Conceptual Framework. IAS 37 is applied to accounting for any removal and restoration obligations.
An entity must apply an accounting policy consistently and change it only if it improves relevance and/or reliability of the financial statements but not at the cost of each other. This is demonstrated if the new accounting policy aligns better with requirements of IAS 8 even if not necessarily complying fully.
An entity shall classify exploration and evaluation assets consistently into tangible and intangible assets depending on their nature.
Once exploration and evaluation assets have demonstrated technical feasibility and commercial viability, they shall be assessed for impairment and henceforth no longer classified as exploration and evaluation assets (but as development assets).
An entity applies IAS 36 in assessing for and recognizing impairment of exploration and evaluation assets. However, IFRS 6 specifies different indicators of impairment, such as inability to complete exploration in or non-extension of the time period specified in the legal rights to explore, no further budgeting of exploration expenditures, etc. Once impairment is assessed, the amount is determined in accordance with IAS 36.
IFRS 6 requires allocation of exploration and evaluation assets to cash-generating units but requires them to be no bigger than operating segments as defined in IFRS 9.
An entity shall disclose (a) its accounting policy relevant for exploration and evaluation assets, (b) amounts of assets and liabilities, incomes and expenses and operating and investing cash flows resulting from exploration and evaluation activities, and (c) treat explorations and evaluation assets as a separate asset class.