AASB 6 - Exploration for and Evaluation of Mineral Resources - August 2015

AASB 6 rests on a handful of core concepts that govern recognition, measurement, classification, impairment and disclosure for exploration and evaluation activities. These concepts, and where they appear in the Standard, are:

• Area of interest: An “area of interest” is defined as an individual geological area favourably considered for a deposit, or proved to contain one (Appendix B). The Standard requires accounting policy decisions , including the capitalisation decision and the allocation of costs and impairment testing , to be made on an area-of-interest basis (Aus7.1; Aus9.1; Aus22.1).
• Exploration and evaluation expenditures: Defined in Appendix A as costs incurred in connection with exploration and evaluation before technical feasibility and commercial viability are demonstrable. The Standard applies only to these expenditures (paras 3-5; Appendix A).
• Recognition choice per area of interest: Entities must decide separately for each area of interest whether to expense exploration and evaluation expenditures as incurred or capitalise them as exploration and evaluation assets, subject to the conditions in Aus7.2 (Aus7.1-Aus7.2). This is a material policy choice rather than a mandatory approach.
• Capitalisation conditions: To capitalise an exploration and evaluation asset an entity must hold current rights to tenure of the area and satisfy one of two additional conditions: either expected recoupment through successful development/exploitation/sale, or that exploration activities have not yet reached a stage permitting reasonable assessment of economically recoverable reserves and active and significant operations are continuing (Aus7.2).
• Measurement at recognition: If capitalised, exploration and evaluation assets are measured at cost (para 8). Para 9 and the Australian Aus9.x paragraphs detail expenditures that may form part of cost and how direct/indirect costs are allocated (para 9; Aus9.1-Aus9.4).
• Subsequent measurement: After initial recognition, entities may apply either the cost model or the revaluation model consistent with asset classification (para 12; paras 15-16); the revaluation model must be consistent with AASB 116 or AASB 138 depending on classification.
• Treatment of development costs: Expenditures related to development are excluded from exploration and evaluation assets and are dealt with by the Conceptual Framework and AASB 138 (para 10; AusCF10).
• Impairment mechanics: Recognition of exploration and evaluation assets triggers impairment assessment when indicators exist; in such cases impairment measurement, presentation and disclosure follow AASB 136, but the asset-identification step for impairment uses the fact-pattern indicators set out in para 20 and the allocation to CGUs is constrained by operating segment size and, for Australian entities, the area-of-interest boundary (paras 18-22; Aus22.1).
• Disclosure and presentation: Exploration and evaluation assets must be a separate class of assets, with disclosures of accounting policies and amounts of assets, liabilities, income, expense, and cash flows arising from such activities. Entities recognising exploration and evaluation assets must additionally explain recoverability dependence on development/exploitation or sale for the relevant areas (paras 23-25; Aus24.1).
• Interaction with other Standards and tiers: The Standard must be read with other Australian Accounting Standards and AASB 1048/AASB 1057 guidance. It incorporates IFRS 6; Tier 1 for-profit entities complying with AASB 6 comply with IFRS 6; Tier 2 Tiered reporting entities using simplified disclosures may not (Comparison with IFRS 6 section; Appendix C AusC1).

These concepts create a structure in which accounting recognition of exploration activities is discretionary at the area-of-interest level, but constrained by tenure and evidence of recoverability, subject to impairment discipline, and accompanied by prescriptive cost allocation and disclosure rules. The Standard ties impairment testing and presentation to established standards (AASB 136, AASB 116, AASB 138), creating dependence on those frameworks for measurement and disclosure mechanics.

AASB 6 affects entities that undertake exploration for and evaluation of mineral resources and prepare general purpose financial statements under Australian Accounting Standards. The affected parties and the nature of the effect are:

• For-profit entities that have legal rights to explore: These entities must apply AASB 6 to exploration and evaluation expenditures incurred after obtaining legal rights to explore (para 3; Appendix A). For-profit entities that adopt AASB 6 will also comply with IFRS 6 according to the Standard’s comparison note, so the Standard is directly relevant to listed exploration companies and private entities preparing GPFS under Tier 1 (Comparison with IFRS 6).
• Not-for-profit entities and AusCF entities: The Standard includes specific AusCF paragraphs applicable to not-for-profit entities and to for-profit entities that do not apply the Conceptual Framework for Financial Reporting, collectively “AusCF entities” (AusCF1). These AusCF provisions clarify that such entities must not recognise development expenditures as exploration and evaluation assets (AusCF10) and tailor the Framework references used for AusCF entities (AusCF1).
• Tier 2 entities using Simplified Disclosures: Appendix C (AusC1) states paragraphs 23-25 do not apply to entities preparing GPFS under AASB 1060 Simplified Disclosures for Tier 2 entities. That means certain disclosure requirements do not apply to Tier 2 entities electing that regime, though the accounting recognition and measurement mechanics still apply where AASB 6 applies (Appendix C).
• Preparers of financial statements: Management and reporting teams in exploration and mining groups must choose accounting policies for each area of interest (Aus7.1), identify areas of interest and allocate direct and indirect costs (Aus9.1-Aus9.4), determine the timing of reclassification when technical feasibility and commercial viability are demonstrable (para 17), and test for impairment at the level of CGUs not larger than an operating segment and, for Australian entities, not larger than the area of interest (paras 21-22; Aus22.1). They must also document and disclose the policies and the amounts (paras 23-25; Aus24.1).
• Auditors: The discretion permitted by the Standard (expense versus capitalise per area of interest) interacts with auditor evaluation of accounting policy appropriateness and with audit testing of cost allocations, impairment indicators and the consistency of policy application (Aus7.1; para 9).
• Investors and financial statement users: The Standard’s mechanics affect the presentation of assets and expenses, and disclosures required to explain the amounts and the dependency on successful development or sale (paras 2(c), 24, Aus24.1). The choice to capitalise or expense, and the subsequent impairment testing mechanics, directly affect reported asset values, expenses and the narrative around recoverability.
• Regulators and standard setters: The Standard’s alignment with IFRS 6 for for-profit Tier 1 entities means that regulators who monitor IFRS conformity will look to AASB 6 compliance as satisfying that framework; Australian-specific Aus paragraphs create additional compliance points for Australian entities and regulators (Comparison with IFRS 6; Aus paragraphs).

The Standard therefore affects the accounting treatment and disclosure obligations of a defined population of entities engaged in exploration and evaluation, their auditors who assess consistency and reasonableness of policy choices and allocations, and users of financial statements who receive the reported numbers and accompanying narrative required by the Standard. Who “pays” for these obligations is primarily the reporting entity (preparer/auditor costs and increased disclosure effort), while the information benefits accrue to users of the statements (para 2(c)).

AASB 6 creates a set of duties for entities preparing financial statements and defines the limited rights (discretion) such entities hold when accounting for exploration and evaluation. Key duties and rights include:

Duties

• Apply the Standard to exploration and evaluation expenditures incurred after obtaining legal exploration rights and before technical feasibility and commercial viability are demonstrable (paras 3-5; Appendix A).
• Decide, for each area of interest, whether exploration and evaluation expenditures are expensed as incurred or treated as an exploration and evaluation asset, and document this accounting policy (Aus7.1; para 13 requires policy changes to be justified under AASB 108 criteria).
• Only recognise an exploration and evaluation asset where the rights to tenure of the area are current and where either expected recoupment via development/exploitation/sale is expected or where exploration has not reached a stage permitting reasonable assessment and active operations continue (Aus7.2).
• Measure recognised exploration and evaluation assets at cost on initial recognition (para 8) and apply either the cost model or revaluation model thereafter consistent with classification (para 12; paras 15-16).
• Allocate direct and indirect costs specifically to the area of interest as appropriate (Aus9.1); include acquisition-of-rights costs where acquired as part of exploration (Aus9.2); include depreciation of exploration equipment and certain related indirect charges (Aus9.3); and allocate general and administrative costs only to the extent directly related to operational activities in the area (Aus9.4).
• Exclude development expenditures from the exploration and evaluation asset class (para 10; AusCF10).
• Assess recognised exploration and evaluation assets for impairment when facts and circumstances indicate possible impairment, and measure, present and disclose impairment losses in accordance with AASB 136 (paras 18-20).
• Specify an accounting policy for allocating exploration and evaluation assets to CGUs or groups of CGUs for impairment testing; ensure that such CGUs are not larger than an operating segment and, for Australian entities, not larger than the area of interest (paras 21-22; Aus22.1).
• Disclose accounting policies and amounts of assets, liabilities, income, expense and operating and investing cash flows arising from exploration and evaluation activities; and where exploration and evaluation assets are recognised, explain that recoverability depends on successful development and exploitation or sale (paras 23-25; Aus24.1).
• Present exploration and evaluation assets as a separate class of assets and make the disclosures required by AASB 116 or AASB 138 consistent with classification (para 25).

Rights / Discretions

• Area-of-interest granularity: Entities have the right to apply their accounting policy choice (expense or capitalise) separately for each area of interest, rather than being forced into a single entity-wide approach (Aus7.1).
• Policy change within constraints: An entity may change its accounting policy for exploration and evaluation expenditures if the change improves relevance without reducing reliability, judged under AASB 108; Aus13.1 requires conformity with Aus7.1 and Aus7.2 when changing that policy (paras 13-14; Aus13.1).
• Choice of subsequent measurement: Entities may elect the cost model or the revaluation model for recognised exploration and evaluation assets, subject to consistency with asset classification (para 12; paras 15-16).
• Allocation of costs: Entities control their methodology for allocating direct and indirect costs to an area of interest, provided allocations reflect costs that specifically relate to the area and follow the examples and constraints in Aus9.1-Aus9.4.
• Level of impairment testing: Entities determine the level at which they allocate exploration and evaluation assets to CGUs for impairment testing, within the ceilings of an operating segment and, for Australian entities, the area of interest (paras 21-22; Aus22.1).

These duties and rights create compliance obligations and discretion that must be documented and justified. The Standard links several duties to other Standards (AASB 108, AASB 136, AASB 116, AASB 138) and requires policy choices and impairment assessments to be defensible under those frameworks (paras 6, 18, 12). The areas where discretion is permitted , notably the decision to capitalise per area of interest and the subsequent measurement model , are accompanied by constraints designed to limit opportunistic recognition (required current rights to tenure; expected recoupment or ongoing active exploration as per Aus7.2) and to require transparency through disclosure (paras 23-25; Aus24.1).

AASB 6 is an accounting Standard made by the Australian Accounting Standards Board under section 334 of the Corporations Act 2001 (Accounting Standard AASB 6). The text itself does not prescribe statutory criminal penalties or administrative sanctions within its paragraphs; enforcement and penalty mechanisms depend on the Corporations Act, regulatory frameworks and the responsibilities of auditors, regulators and courts for compliance with accounting standards. The Standard’s provisions that relate to enforcement and consequences are therefore implicit rather than enumerated in the Standard. From the Standard’s content the following enforcement-relevant mechanisms and consequences can be drawn:

• Regulatory and statutory enforcement channel: Because the Standard is made under section 334 of the Corporations Act 2001, entities that must comply with Australian Accounting Standards (for the purposes of that Act) are required to prepare financial reports that comply with applicable standards. Non‑compliance can therefore trigger regulatory scrutiny under the Corporations Act, such as ASIC oversight, enforcement actions for breaches of financial reporting obligations and potential consequences under the Act. The Standard itself does not list specific penalties (see Accounting Standard AASB 6 header).
• Audit and assurance mechanisms: The Standard imposes duties on preparers (recognition, measurement, disclosure) that auditors must test. Auditors will apply auditing standards and professional obligations to evaluate whether the entity’s accounting policies and their application comply with AASB 6, including the application of Aus7.1/Aus7.2, cost allocation approaches (Aus9.1-Aus9.4), impairment testing pursuant to AASB 136 (paras 18-22) and disclosure obligations (paras 23-25). Audit findings can result in qualified opinions, emphasis of matter paragraphs, or other report modifications where non-compliance is material.
• Market and contractual consequences: The Standard affects reported assets, expenses and disclosed recoverability risk. Non-compliance or aggressive application of discretion may produce market reaction, affect investor confidence and influence contractual covenants that rely on audited financial statements. Those are practical enforcement pressures rather than statutory penalties, but they are an important enforcement channel implied in the obligations to disclose (para 24).
• Interplay with other Standards and retrospective application: The Standard requires retrospective application of certain amendments (para 26A) in line with AASB 108 unless impracticable; failure to apply retrospective amendments where required would be a non-compliance issue for financial statements subject to audit and regulatory review.
• Internal governance and documentation oversight: The Standard places duties on entities to justify policy choices and policy changes (paras 13-14; Aus13.1), to allocate costs and to document impairment judgments and CGU allocations (paras 21-22; Aus22.1). These obligations create governance and internal control expectations that, if not met, are likely to be evident in audit work and regulatory review.

The Standard itself does not create bespoke pecuniary fines or criminal sanctions; enforcement stems from the statutory framework under which AASB Standards operate and from professional, market and contractual disciplines that apply to financial reporting. Auditors, regulators and users will rely on the Standard’s mandatory requirements (recognition rules, measurement, impairment and disclosure) when testing compliance, and deficiencies can lead to audit qualifications, regulatory investigations and market consequences.

AASB 6 is an Accounting Standard made under section 334 of the Corporations Act 2001 and is designed to be read with other Australian Accounting Standards. The Standard explicitly cross-references multiple other Standards and legal-instrument contexts and creates particular interactions:

• Corporations Act 2001: AASB 6 is made under section 334 of the Corporations Act; compliance with the Standard is required of entities preparing financial reports under that Act. The Standard does not restate enforcement provisions of the Corporations Act but operates within its statutory framework (Accounting Standard header).
• AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors: AASB 6 provides a temporary exemption from AASB 108 paragraphs 11 and 12 when developing accounting policies for exploration and evaluation assets, while directing entities to apply paragraph 10 of AASB 108 and specific AusCF paragraphs (paras 6-7). Changes in accounting policies remain subject to AASB 108 criteria (paras 13-14) and retrospective application requirements for certain amendments reference AASB 108 (para 26A).
• AASB 136 Impairment of Assets: The Standard requires recognised exploration and evaluation assets to be tested for impairment when indicators exist and for impairment losses to be measured, presented and disclosed in accordance with AASB 136, except that paragraph 20 of AASB 6 prescribes the facts and circumstances that indicate impairment testing (paras 18-20).
• AASB 116 Property, Plant and Equipment and AASB 138 Intangible Assets: For subsequent measurement, entities may choose the revaluation model as set out in AASB 116 or AASB 138 depending on classification; AASB 6 requires that revaluation model usage be consistent with asset classification (para 12; paras 15-16). Presentation requirements for the separate class of exploration and evaluation assets must be consistent with disclosures required by AASB 116 or AASB 138 (para 25).
• AASB 1048 Interpretation of Standards and AASB 1057 Application of Australian Accounting Standards: The Standard is to be read in the context of these Standards, which identify Australian Accounting Interpretations and set out tier application rules and reporting contexts. The AusCF paragraphs rely on AASB 1048 for Conceptual Framework identification and AASB 1057 for application guidance (Basis for Conclusions opening paragraphs; AusCF1).
• AASB 1060 and Tiering: Appendix C (AusC1) records that paragraphs 23-25 do not apply to Tier 2 entities applying AASB 1060 Simplified Disclosures. The compilation table lists AASB 1060 as an amending standard and sets its effective date, indicating an interaction where simplified disclosure regimes modify some AASB 6 disclosure obligations (Compilation details; Appendix C).
• The Conceptual Framework / Framework for the Preparation and Presentation of Financial Statements: AusCF paragraphs specify which version of the Framework applies to AusCF entities and reiterate that development costs are not to be recognised as exploration and evaluation assets for AusCF entities (AusCF1; AusCF10).
• Legislation Act 2003: The compilation table notes repeals and legislative cross-references; for example, Aus27.1 is marked as repealed by the Legislation Act 2003, s. 48D in the Table of amendments. Aus27.2 clarifies the effect of repeal and application under the Corporations Act (Aus27.2).

These cross-references mean that compliance with AASB 6 cannot be understood in isolation. Practical application requires coordination with AASB 108 for policy development and change, AASB 136 for impairment testing mechanics, and AASB 116/AASB 138 for revaluation and presentation. The Standard also interacts with tiering rules and simplified disclosures for Tier 2 entities (Appendix C). For entities that are subject to other legislative regimes (taxation, securities law, environmental law), the Standard does not alter those legal obligations but will affect reported financial information that regulators, investors and counterparties rely upon.

AASB 6 as compiled incorporates amendments up to and including 6 March 2020; the compilation was prepared on 8 June 2021 with an effective application for annual periods beginning on or after 1 July 2021 (Compilation details). The Standard as reproduced here originated as AASB 6 made on 7 August 2015 under section 334 of the Corporations Act. The Standards table in the compilation and the table of amendments identify the concrete amendments and their dates:

• Original issuance and commencement:
  • AASB 6 originally made on 7 August 2015, commencement date recorded 31 December 2015 and effective for annual periods beginning 1 January 2016 (Table of Standards; AASB 6 row).
  • Paragraph 26 allowed earlier application for annual periods beginning on or after 1 January 2014 but before 1 January 2016 (para 26).
• AASB 2019-1 Amendments to Australian Accounting Standards - References to the Conceptual Framework:
  • AASB 2019‑1, made 21 May 2019 and effective for annual periods beginning on or after 1 January 2020, added AusCF paragraphs and amended paragraph 10; entities apply the amendments retrospectively in accordance with AASB 108 unless impracticable (para 26A; Table of Standards).
  • The Table of amendments records that AusCF1, AusCF10, and amendments to paragraph 10 and 26A were introduced by AASB 2019‑1.
• AASB 1060 and Appendix C:
  • AASB 1060 (General Purpose Financial Statements - Simplified Disclosures for Tier 2 entities) is recorded as made 6 March 2020 with commencement 30 June 2021 and effective for annual periods beginning 1 July 2021. It added Appendix C to AASB 6 to exempt Tier 2 entities using AASB 1060 from paragraphs 23-25 (Appendix C; Table of Standards row AASB 1060; Table of amendments entry).
• Repeal of Aus27.1:
  • The Table of amendments notes Aus27.1 was repealed by the Legislation Act 2003, s. 48D (Table of amendments).

Transitional and application notes:

• Paragraph 26A instructs entities to apply the 2019-1 amendments for annual periods beginning on or after 1 January 2020; earlier application is permitted if other amendments in AASB 2019‑1 are applied concurrently and retrospective application is required in accordance with AASB 108 unless impracticable (para 26A).
• Transitional provision in para 27 addresses impracticability for applying paragraph 18 to comparative information for annual periods beginning before 1 January 2005, requiring disclosure if impracticable.
• Aus27.2 clarifies that the Standard repeals the earlier AASB 6 issued in December 2004 but that the earlier Standard continues to apply to periods ending before this Standard’s application under section 334 of the Corporations Act (Aus27.2).

The compilation details table shows the incorporation of amendments up to 6 March 2020 and indicates which paragraphs and appendix entries were added or amended in the respective Standards. The amendment history therefore records the Standard’s original issuance, later amendments tied to the Conceptual Framework reference update (AASB 2019‑1) and the addition of simplified disclosure exceptions for Tier 2 entities (AASB 1060). The Standard’s amendments are to be applied in accordance with AASB 108 where retrospective application is required, with specified impracticability exceptions.

The text of AASB 6 that you provided contains no reported litigation, court decisions, or tribunal determinations. The Standard itself does not list cases or litigation history; it is an accounting pronouncement that cross-references other accounting Standards and statutory frameworks but does not summarise adjudicated disputes.

Nevertheless, the Standard creates areas where accounting judgments and discretionary policy choices (such as the decision to capitalise or expense exploration and evaluation expenditures per area of interest, Aus7.1-Aus7.2) could be contested in dispute settings, including audit disputes, regulatory investigations and litigation over financial misstatement. The document identifies mechanics that would be focal points in any such proceedings, namely:

• The capitalisation decision per area of interest (Aus7.1-Aus7.2): litigation or regulatory scrutiny could arise where stakeholders allege that an entity capitalised expenditures without satisfying the tenure/current-rights requirement or the recoverability or ongoing active-exploration conditions in Aus7.2.
• Cost allocation and classification (para 9; Aus9.1-Aus9.4): disputes may arise over whether particular costs were properly allocated to an area of interest (for example, whether general and administrative costs were related directly enough to be capitalised under Aus9.4).
• Impairment testing and CGU allocation (paras 18-22; Aus22.1): litigation or enforcement action could challenge the level at which assets were allocated to CGUs for impairment testing, particularly given Aus22.1’s explicit ceiling that the level shall be no larger than the area of interest.
• Reclassification timing (para 17): disputes could concern whether, and when, the technical feasibility and commercial viability of extracting a mineral resource became demonstrable such that reclassification out of exploration and evaluation assets was required.
• Disclosure adequacy (paras 23-25; Aus24.1): cases or regulatory actions could question whether an entity provided sufficient explanation that the recoverability of the carrying amount depends on successful development, exploitation or sale, as required by Aus24.1.

Although AASB 6 does not record litigation history, these points identify the factual and judgemental issues that typically underpin disputes about compliance with accounting standards. Litigation matters, if brought, would likely test the entity’s contemporaneous documentation of tenure, budgeted future expenditure, exploration outcomes, cost-allocation methodologies, impairment indicators and the reasoned basis for CGU definition and classification. Given that impairment measurement and presentation are to follow AASB 136 (para 18), any adjudication would also involve the application of that Standard’s mechanics and definitions.

Because the Standard links to other Standards (AASB 108, AASB 136, AASB 116, AASB 138) litigation involving AASB 6 compliance may frequently be framed around the application of those Standards as well as AASB 6’s specific tests and definitions.

AASB 6 is short in form but dense in practicable traps for preparers and auditors. The following are concrete “gotchas” derived from the Standard’s text and the Australian Aus paragraphs that commonly create compliance risk or require careful judgment and documentation:

1. Area-of-interest granularity and policy per area: The Standard requires that the decision to expense or capitalise must be made separately for each area of interest (Aus7.1). Prepare to document why each area is considered separate, and why a given policy applies to that area. Failure to define and justify areas of interest will undermine the capitalisation choice.

2. Current rights to tenure are mandatory for capitalisation: Aus7.2(a) makes current tenure a threshold requirement. Costs incurred without legally current rights to explore in the area cannot be capitalised. Practically, this requires contemporaneous legal evidence of tenure.

3. The “and/or” nature of Aus7.2(b): Capitalisation further requires either expected recoupment via successful development/sale or that the exploration has not reached a stage permitting reasonable assessment of recoverable reserves and active and significant operations are continuing (Aus7.2(b)(i)-(ii)). The second limb permits capitalisation when work is still in early phases; the first limb demands a realistic expectation of recoupment. Entities should document which limb they rely on and why.

4. Cost composition traps: Para 9 gives examples of costs that might be capitalised; Aus9.1-Aus9.4 add that indirect costs and certain administration costs can be capitalised only if they specifically relate to an area of interest and not otherwise. Aus9.4 specifically requires that general and administrative costs be capitalised only to the extent directly related to operational activities. Prepare detailed allocation methodologies and rationales for indirect/common costs.

5. Exclusion of development costs: Para 10 and AusCF10 exclude development expenditures from exploration and evaluation assets. Entities must have a clear demarcation between exploration/evaluation and development costs; misclassification here can lead to misstated assets.

6. Impairment indicator list is not exhaustive but prescriptive: Para 20 lists facts that require testing. One common trap is failing to test when tenure is near expiry and not expected to be renewed (para 20(a)), or when there are no budgets for substantive future exploration (para 20(b)). These are objective triggers that must be monitored regularly.

7. CGU allocation ceiling and Australian constraint: Paras 21-22 cap CGU size by operating segment; Aus22.1 further narrows the CGU for impairment testing to be no larger than the area of interest. The practical consequence is that an exploration asset cannot be aggregated across multiple areas of interest to avoid impairment. Entities must therefore organise their impairment testing to the area-of-interest level where appropriate.

8. Revaluation option consistency: Para 12 permits the revaluation model but requires consistency with classification under AASB 116 or AASB 138. A “revaluation” choice can be administratively complex and requires that observable market data or active market conditions exist. Revaluation practice must follow the relevant Standard’s rules.

9. Disclosure exceptions for Tier 2: Appendix C AusC1 removes paragraphs 23-25 for Tier 2 entities adopting AASB 1060. Entities must not assume full disclosure exemptions; other disclosure requirements may still apply, and users may interpret absence of disclosure as suggesting either no capitalised assets or incomplete reporting.

10. Temporary exemption from AASB 108 paragraphs 11 and 12: Paras 6-7 provide an exemption that changes the usual hierarchy for accounting policy selection in this context. This is a special rule that requires familiarity; improperly applying the usual AASB 108 paragraphs may lead to inconsistent policy selection.

11. Retrospective application of AASB 2019-1: Para 26A requires retrospective application of the Conceptual Framework amendments unless impracticable. Preparer teams must check comparative periods and document impracticability if retrospective application is not feasible.

12. Presentation as a separate class: Para 25 requires exploration and evaluation assets to be treated as a separate class and to make associated disclosures per AASB 116 or AASB 138. Entities that mix exploration assets into broader classes risk non-compliance.

13. “Active and significant operations” phrase: Aus7.2(b)(ii) requires operations to be “active and significant.” This wording is judgmental; entities must document criteria for what constitutes active and significant operations to defend capitalisation.

14. Dependence on other Standards for impairment measurement: Para 18 instructs application of AASB 136 when impairment is suspected, but para 19 replaces paragraphs 8-17 of AASB 136 in the asset-identification stage with the specific guidance in para 20. Misapplication of the AASB 136 framework without correctly applying AASB 6’s asset-identification step can lead to incorrect impairment outcomes.

These gotchas create documentation, governance and audit points of attention. The Standard puts procedural and substantive constraints around capitalisation, cost allocation and impairment testing; in practice, robust contemporaneous records of tenure, budgets, exploration plans, cost allocation methodologies and impairment indicators are required to support the accounting positions the Standard permits.

Compliance with AASB 6 requires a disciplined set of policies, processes and documentation. Below is a practical compliance checklist mapped to the Standard’s paragraphs to guide preparers and auditors.

1. Identify scope and affected expenditures

   • Confirm that expenditures relate to exploration and evaluation after obtaining legal rights and before technical feasibility and commercial viability are demonstrable (paras 3-5; Appendix A).
   • Exclude pre-tenure expenditures and development expenditures (para 5; para 10; AusCF10).

2. Define and document areas of interest

   • Clearly define each area of interest (Appendix B) and document the economic/geological rationale for treating each area as distinct (Aus7.1; Aus7.3).
   • Maintain legal documentation demonstrating current rights to tenure for each area (Aus7.2(a)).

3. Adopt an accounting policy per area of interest

   • For each area of interest, decide whether to expense expenditures as incurred or capitalise as an exploration and evaluation asset (Aus7.1).
   • Document the policy decision and ensure it is applied consistently for that area. If changing the policy, follow AASB 108 criteria (paras 13-14; Aus13.1).

4. Capitalisation criteria and evidence

   • If capitalising, ensure the threshold in Aus7.2 is met: current tenure plus either expected recoupment through successful development/exploitation/sale or that exploration has not reached a stage permitting reasonable assessment and active and significant operations continue (Aus7.2).
   • Document the basis for expected recoupment or ongoing activity (budgets, exploration plans, drilling programmes) and the legal tenure evidence.

5. Cost recognition and allocation

   • Determine which expenditures are included in cost (para 9) and adopt a written policy on cost composition consistent with para 9 and Aus9.1-Aus9.4.
   • Allocate direct costs and appropriately allocate indirect costs to the area of interest; document allocation bases and rationales (Aus9.1).
   • Capitalise acquisition-of-rights costs when acquired as part of exploration (Aus9.2).
   • Capitalise depreciation and indirect charges where they specifically relate to exploration and evaluation in the area (Aus9.3).
   • Avoid capitalising general corporate expenses unless they directly relate to operational activity in the area (Aus9.4).

6. Initial and subsequent measurement

   • Measure recognised exploration and evaluation assets at cost on initial recognition (para 8).
   • Decide between cost model and revaluation model for subsequent measurement and document the rationale. If choosing revaluation, ensure compliance with AASB 116 or AASB 138 and that the asset classification supports revaluation (para 12; paras 15-16).

7. Classification and presentation

   • Classify the asset as tangible or intangible based on its nature and present exploration and evaluation assets as a separate class in financial statements (paras 15, 25).
   • Make required AASB 116 or AASB 138 disclosures consistent with classification (para 25).

8. Impairment testing and CGU allocation

   • Monitor facts and circumstances per para 20 to identify impairment indicators; maintain an issues log or trigger register for motioning testing.
   • When indicators are present, test for impairment and measure, present and disclose any resulting impairment in accordance with AASB 136 (paras 18-20).
   • Allocate exploration and evaluation assets to CGUs or groups of CGUs for impairment testing; ensure that CGUs are not larger than an operating segment and, in Australia, are no larger than the area of interest (paras 21-22; Aus22.1).
   • Maintain working papers documenting the CGU definitions, allocations and impairment calculations.

9. Reclassification to development or production

   • Reclassify exploration and evaluation assets when technical feasibility and commercial viability of extracting a mineral resource are demonstrable (para 17).
   • Before reclassification, assess for impairment and recognise any loss; document the reasoning and evidence supporting the demonstrability of feasibility and viability.

10. Disclosures

    • Disclose accounting policies for exploration and evaluation expenditures, including recognition criteria and whether assets are recognised (para 24(a)).
    • Disclose amounts of assets, liabilities, income and expense and operating and investing cash flows arising from exploration and evaluation activities (para 24(b)).
    • If the entity recognises exploration and evaluation assets, explain that recoverability of the carrying amount depends on successful development and exploitation or sale of the area(s) of interest (Aus24.1).
    • Present exploration and evaluation assets as a separate class and comply with the relevant presentation and disclosure requirements of AASB 116 or AASB 138 (para 25).
    • For Tier 2 entities applying AASB 1060, note the simplified disclosure relief in Appendix C AusC1 and ensure that the relief is applied correctly.

11. Change management and retrospective application

    • If changing accounting policy for exploration and evaluation expenditures, ensure the change meets AASB 108 criteria and remains consistent with Aus7.1/Aus7.2 (paras 13-14; Aus13.1).
    • For amendments introduced by AASB 2019‑1, apply them retrospectively as required by AASB 108, unless impracticable, in which case apply the specified relief in paragraph 26A.

12. Controls, audit evidence and documentation

    • Maintain legal tenure documents, budgets and exploration plans, cost allocation methodologies and supporting schedules, impairment trigger logs and CGU working papers.
    • Prepare a narrative disclosure that links capitalised amounts to the expectation of recoupment through development or sale and identifies major uncertainties.
    • Coordinate with auditors early to agree on the application of Aus7.1/Aus7.2, allocation rules, CGU definitions and impairment testing approaches.

13. Governance and internal training

    • Ensure finance, exploration management and legal teams understand the distinction between exploration/evaluation and development for accounting purposes.
    • Build internal sign-offs for the area-of-interest definition, policy application and impairment triggers.

Following this checklist, and explicitly citing the relevant AASB 6 paragraphs in working papers, will materially reduce compliance risk and make external audit and regulatory scrutiny more straightforward. Documentation is the single most important control given the Standard’s permitted discretion and the number of judgemental thresholds (Aus7.1-Aus7.2; para 20; Aus22.1).