aCCOUNTING STANDARD AASB 6
The Australian Accounting Standards Board made Accounting Standard AASB 6 Exploration for and Evaluation of Mineral Resources under section 334 of the Corporations Act 2001 on 9 December 2004.
This compiled version of AASB 6 applies to annual reporting periods beginning on or after 1 July 2015. It incorporates relevant amendments contained in other AASB Standards made by the AASB up to and including 28 January 2015 (see Compilation Details).
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 statements arising from the exploration for and evaluation of mineral resources and help users of those financial statements 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 statements of each other reporting entity; and
(c) financial statements that are, or are held out to be, general purpose financial statements.
Aus2.2 This Standard applies to annual reporting periods beginning on or after 1 January 2005.
[Note: For application dates of paragraphs changed or added by an amending Standard, see Compilation Details.]
Aus2.3 This Standard shall not be applied to annual reporting periods beginning before 1 January 2005.
Aus2.4 [Deleted by the AASB]
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Aus2.6 AASB 1022 and AAS 7 remain applicable until superseded by this Standard.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 end of the reporting period 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 an accounting 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 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. 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 statements 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 an operating segment determined in accordance with AASB 8 Operating Segments.
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 statements 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.