During the preparatory works, ABC discovered that the operating lease contract related to a machine might require some adjustments. It would have forced them to fall back to the IASB Conceptual Framework, or to standards issued by their respective national standard setters. It was also argued that some entities are created just to carry out exploration, and once this is complete, they sell the rights to the minerals found. A Lack of sufficient data to determine whether the carrying amount of the exploration and evaluation asset is likely to be recovered in full from successful development or by sale For example, judgements made about the lease term or scope of the standard. IFRS 6 therefore deems these costs to be assets. In your second example, you are correct. Example … The criteria to be used to determine if a policy is relevant and reliable are set out in paragraph 10 of IAS 8. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. C The absence of budgeted or planned substantive expenditure on further exploration and evaluation activities in the specific area Specifically: An entity treats exploration and evaluation assets as a separate class of assets and make the disclosures required by either IAS 16 Property, Plant and Equipment or IAS 38 Intangible Assets consistent with how the assets are classified. Which of the following facts or circumstances would not trigger a need to test an evaluation and exploration asset for impairment? Exempt from requirements of IAS 8 to look to other IFRSs on similar and related issues AND definitions, recognition criteria and measurement concepts in the Framework when developing accounting policy for E&E assets. EC staff consolidated version as of 16 September 2009 Last EU endorsed/amended on 03.11.2008. IFRS 16 Leases contains detailed guidance on how to account for lease modifications. Example … Without IFRS 6, many entities would have had to change their practice of accounting for these costs. IFRS 6 therefore also gives some flexibility when defining a CGU. International Financial Reporting Standards - IFRS: International Financial Reporting Standards (IFRS) are a set of international accounting standards stating how particular types of … Examples of such expenditures are those for exploration and evaluation activities, which can be recognised according to IFRS 6 as either an asset or an expense. Subsequent costs incurred during the exploration and evaluation phase should be capitalised in accordance with this same policy. IFRS. Assets recognised in respect of licences and surveys should therefore be classified as intangible assets. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets (right-of-use) and liabilities for All leases with a term of more than 12 months ( unless the underlying asset is of low value ). 4. These Illustrative Examples accompany IFRS 17 Insurance Contracts (issued May 2017; see separate booklet) and are issued by the International Accounting Standards Board (the Board). These entities' financial statements give information An entity accounts for its exploration and evaluation expenditure either in accordance with the Conceptual Framework or with the exemption permitted by IFRS 6. The standard was published in December 2004 and is effective from 1 January 2006. IFRSs – With respect to revenue recognition, the IFRS framework is general in nature in their requirements, if compared to the GAAP. 13.4 Consequential amendments to other IFRS requirements 341 13.5 First-time adoption 342 Guidance referenced 344 Detailed contents 345 Index of examples 348 Index of KPMG insights 355 About this publication 363 Keeping in touch 364 Acknowledgments 366 hyphenated at the specified hyphenation points. 2. Page 1 of 6 IFRS 9 EXAMPLES AND EXERCISES Acknowledgement This material is based on IFRS 9 (published by IASB) and Get ready for IFRS 9 (published by Grant Thornton) Required For Examples 1 to 7, determine the objective of the business model. IFRS 6 Exploration for and Evaluation of Mineral Resources provides guidance on accounting for exploration and evaluation expenditures, including the recognition of exploration and evaluation assets. Most of the major entities in this sector use the ‘successful efforts’ method, where the costs incurred in finding, acquiring, and developing reserves are capitalised on a ‘field by field’ basis. Under IFRS 15, this is not permitted, as IFRS 15 requires allocating the transaction price to individual performance obligations. This site uses cookies to provide you with a more responsive and personalised service. The facts and circumstances indicating impairment include the following: As this type of asset does not generate cash inflows, it is tested for impairment as part of a larger group of assets. Presentation of discontinued operations 426. C Recent pronouncements of standard-setting bodies, and accepted industry practices Non-current assets and disposal groups held for sale 422. The entity’s right to explore in an area has expired, or will expire in the near future, without renewal. Exploration and evaluation expenditure might therefore be capitalised earlier than would otherwise be the case under the Conceptual Framework. Please visit our global website instead, Can't find your location listed? Example 1: Lease accounting in IFRS 16. IFRS 6 effectively modifies the application of IAS 36 Impairment of Assets to exploration and evaluation assets recognised by an entity under its accounting policy. However, some companies have used the ‘full cost’ approach, where all costs are capitalised. The company has rented an office with 5 years and the payment of $120,000 is at the end of each year. A The requirements and guidance in IFRSs dealing with similar and related issues This includes continuing to use recognition and measurement practices that are part of those accounting policies. Once entered, they are only Each word should be on a separate line. Basically, the entity can retain the accumulated cost as an exploration asset until there is sufficient information to determine whether there will be commercial cash flows or not. Assets should be tested for impairment if the carrying amount of the asset may not be recoverable. ... For Example: A construction contract priced in foreign currency. Sufficient data exists to indicate that the book value will not be fully recovered from future development and production. IFRS 6 APPLIES AFTER THE ENTITY HAS OBTAINED LEGAL RIGHTS TO EXPLORE IN A SPECIFIC AREA, BUT BEFORE EXTRACTION HAS BEEN DEMONSTRATED TO BE BOTH TECHNICALLY FEASIBLE AND COMMERCIALLY VIABLE. be neutral (free from bias), prudent, and complete. IFRS 6 was issued in December 2004 and applies to annual periods beginning on or after 1 January 2006. BC67-BC81) Investment contracts with discretionary participation features (paragraphs 4(b) and 71 of IFRS … Updated by a member of the DipIFR examining team. Short example of a similar situation: Under IAS 18, many telecom operators provided free handsets to customers and treated them as “marketing costs”, or costs to obtain a client. Answers: 1(d), 2(c), 3(a), Virtual classroom support for learning partners, Diploma in International Financial Reporting, IFRS 6, exploration for and evaluation of mineral resources, be relevant to the decision-making needs of users. It also modifies impairment testing of exploration and evaluation assets by introducing different impairment indicators and allowing the carrying amount to be tested at an aggregate level (not greater than a segment). IFRS 6 is not currently on the work plan of the IASB. Reference • Understanding IFRS Fundamentals, Nandakumar Ankarath, Kalpesh J. Mehta,Dr. A lease modification is defined as a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease. 1The objective of this IFRS is to specify the financial reporting for the exploration for and evaluation of mineral resources.. 2In particular, the IFRS requires: (a)limited improvements to existing accounting practices for exploration and evaluation expenditures. IFRS 6 therefore deems these costs to be assets. IFRS is intended to be applied by profit-orientated entities. IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. Model IFRS statements These are illustrative IFRS financial statements of a listed company, prepared in accordance with International Financial Reporting Standards. 1. A lease modification includes adding or ... See examples 6 and 7. On discovery of a commercially-viable mineral reserve, the capitalised costs are allocated to the discovery. Please allow me to further clarify. The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. The classification as ‘tangible’ or ‘intangible’, established during the exploration phase, should be continued through to the development and production phases. B Entities can change accounting policies as long as the new policy results in information that is relevant and reliable If a discovery is not made, the expenditure is charged as an expense. C Only if the change makes the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable and no less relevant to those needs This is similar to IFRS 4, Insurance Contracts. Thank you for contacting LeaseQuery with your questions. What is an entity required to consider when deciding on its accounting policies for exploration and evaluation activities? The facts and circumstances outlined in IFRS 6 are non-exhaustive, and are applied instead of the 'indicators of impairment' in IAS 36 [IFRS 6.19-20], Entities are permitted to determine an accounting policy for allocating exploration and evaluation assets to cash-generating units or groups of CGUs. This is a list of the International Financial Reporting Standards (IFRSs) and official interpretations, as set out by the IFRS Foundation.It includes accounting standards either developed or adopted by the International Accounting Standards Board (IASB), the standard-setting body of the IFRS Foundation.. Please read, International Financial Reporting Standards, IFRS 6 Exploration for and Evaluation of Mineral Resources, European Union formally adopts updated references to the Conceptual Framework, AcSB updates research on extractive industries, 17th ESMA enforcement decisions report released, 16th ESMA enforcement decisions report released, IVSC explores extractive industry valuations, EFRAG endorsement status report 9 December 2019, Deloitte comment letter on DP/2010/1 'Extractive Activities', IAS Plus newsletter - Special Global Edition – IFRS 6 Exploration for and Evaluation of Mineral Resources, Extractive activities — Exploration for and evaluation of mineral resources, Extractive activities — Comprehensive project, Project on extractive industries carried over from IASC, Short-term project split off from comprehensive project, Effective for annual periods beginning on or after 1 January 2006, Amended Basis for Conclusions to IFRS 6 only, Entities recognising exploration and evaluation assets are required to perform an impairment test on those assets when specific facts and circumstances outlined in the standard indicate an impairment test is required. If the Conceptual Framework or IAS 36 was applied to these entities, then no assets would ever be recognised. [IFRS 6.25], IFRS 6 requires disclosure of information that identifies and explains the amounts recognised in its financial statements arising from the exploration for and evaluation of mineral resources, including: [IFRS 6.23–24]. However, there are many other differences between US GAAP and IFRS which will be covered in this article going forward. Example with solution 418. Is an entity ever required or permitted to change its accounting policy for exploration and evaluation expenditure? [IFRS 6.Appendix A], Exploration and evaluation expenditures are expenditures incurred in connection with the exploration and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource is demonstrable. A decision has been made to discontinue exploration and evaluation in an area because of the absence of commercial reserves. B The expiration of the period for which the entity has the right to explore in the specific area, unless the right is expected to be renewed IFRS 6 permits entities to continue to use their existing accounting policies, provided they comply with paragraph 10 of IAS 8®, Accounting policies, changes in accounting estimates and errors – that is they result in information which is relevant and reliable. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox. At one end, IFRS 6®, Exploration for and evaluation of mineral resources has introduced certain issues for the industry, and, at the other, IFRS Standards is shifting the boundaries of cash-generating units down to the level of the petrol station or smallest group of retailing assets under IAS 36®, Impairment of assets. The impact of International Financial Reporting Standards (IFRS® Standards) has been felt extensively in the exploration industry – particularly the oil and gas industry where key dilemmas and judgements made are greatest at the exploration and production stage. IFRS 12.B22(b) Examples of entities with a narrow and well-defined objective that may be structured entities include those designed to effect a tax-efficient lease, carry out research and development activities, provide a source of capital or funding to an entity or provide investment opportunities for investors by passing on . The change must result in a policy that is more relevant and no less reliable, or more reliable and no less relevant, than the previous policy. IFRS 6 has the effect of allowing entities adopting the standard for the first time to use accounting policies for exploration and evaluation assets that were applied before adopting IFRSs. 3. Without this exemption, it could mean that each individual extraction unit (such as an oil rig) would be treated as a CGU. Treatment of revenue recognition is one of the few important differences between US GAAP and IFRS systems. [IFRS 6.Appendix A]. The IASB accepted these arguments and therefore issued IFRS 6. In your first example, a lease with less than 12 months left as of transition date, July 1, 2019 in this example, is able to be classified as short term and therefore out of scope for the transition to IFRS 17. IAS 36 specifies that a CGU is the smallest unit for which independent cash flows can be identified. Right to explore in an area because of the IASB accepted these arguments and therefore IFRS... Relevant and reliable are set out in paragraph 10 of IAS 8 respect of and... And reliable are set out in paragraph 10 of IAS 8 are tested for impairment accordance! 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Its accounting policy for allocating these assets to groups of cash generating units ( CGUs ) and that. Policy consistently the full functionality of our site is not supported on your browser version or... Made, the capitalised costs are allocated to the GAAP in this article going.! Payment of $ 120,000 is at the end of each year and is! Entities would have had to change its accounting policies for exploration and evaluation expenditure on how to for! Last EU endorsed/amended on 03.11.2008 by using this site you agree to our use cookies. To IFRS 4, Insurance Contracts the discovery and reliable are set out in paragraph of! Reliable are set out in paragraph 10 of IAS 8 these assets to groups of cash units! Paragraph 10 of IAS 8 for impairment if the Conceptual Framework or 36! Some flexibility when defining a CGU at the specified hyphenation points disclose Leases in area. Respect of licences and surveys should therefore be capitalised in accordance with IAS specifies... 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Sets out practical guidance and examples about the lease term or scope the! Groups of cash generating units ( CGUs ) and apply that policy consistently consolidated ifrs 6 examples as of September!
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