IFRS 6 — Exploration for and Evaluation of Mineral

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Overview
IFRS 6 Exploration for and Evaluation of Mineral Resources has the effect of allowing entities
adopting the standard for the first time to use accounting policies for exploration and evalua-
tion assets that were applied before adopting IFRSs. It also modifies impairment testing of ex-
ploration 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 was issued in December 2004 and applies to annual periods beginning on or after 1
January 2006.

History of IFRS 6

Date Development Comments

November 2000 IASC issues paper Summary of Issues: Ex- Comment

tractive Industries published and comments deadline 30 June
invited 2001

1 April 2001 Project on extractive industries carried over History of the

from IASC comprehensive
project

September 2002 Short-term project split off from compre- History of the

hensive project short-term project

16 January 2004 Exposure Draft ED 6 Exploration for and Comment

Evaluation of Mineral Resources published deadline 16 April
2004

9 December 2004 IFRS 6 Exploration and Evaluation of Effective for

Mineral Resources issued annual periods
beginning on or
after 1 January
2006

30 June 2005 Amended by Amendments to IFRS 1 First- Amended Basis for

time Adoption of International Financial Conclusions to
Reporting Standards and IFRS 6 Exploration IFRS 6 only
 for and Evaluation of Mineral
Resources (transitional relief)

Related Interpretations

o None

Amendments under consideration by the IASB

o Research project — Intangible assets

Summary of IFRS 6

Definitions
Exploration for and evaluation of mineral resources means the search for mineral resources,
including minerals, oil, natural gas and similar non-regenerative resources after the entity has
obtained legal rights to explore in a specific area, as well as the determination of the technical
feasibility and commercial viability of extracting the mineral resource. [IFRS 6.Appendix A]
Exploration and evaluation expenditures are expenditures incurred in connection with the ex-
ploration and evaluation of mineral resources before the technical feasibility and commercial
viability of extracting a mineral resource is demonstrable. [IFRS 6.Appendix A]
Accounting policies for exploration and evaluation
IFRS 6 permits an entity to develop an accounting policy for recognition of exploration and eval-
uation expenditures as assets without specifically considering the requirements of paragraphs
11 and 12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. [IFRS 6.9]
Thus, an entity adopting IFRS 6 may continue to use the accounting policies applied immedi-
ately before adopting the IFRS. This includes continuing to use recognition and measurement
practices that are part of those accounting policies.
Impairment
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. Specifically:
o Entities recognising exploration and evaluation assets are required to perform an im-
pairment test on those assets when specific facts and circumstances outlined in the
standard indicate an impairment test is required. 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]
o Entities are permitted to determine an accounting policy for allocating exploration
and evaluation assets to cash-generating units or groups of CGUs. [IFRS 6.21] This
accounting policy may result in a different allocation than might otherwise arise on
applying the requirements of IAS 36
 o If an impairment test is required, any impairment loss is measured, presented and
disclosed in accordance with IAS 36. [IFRS 6.18]

Presentation and disclosure

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. [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]
a. its accounting policies for exploration and evaluation expenditures including the recog-
nition of exploration and evaluation assets
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.
Special IAS Plus Newsletter explaining IFRS 6
On 31 January 2005, Deloitte's IFRS Global Office published a special edition of our IAS Plus
Newsletter titled IFRS 6 Exploration for and Evaluation of Mineral Resources.

ADDITIONAL EXPLANATIONS:
(https://xplaind.com/288000/ifrs-6)
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
(PPE or IAS 38 INTANGIBLE ASSETS).
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.

Presentation
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).

Impairment
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.

Disclosure
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.