Reading Extractive Industries

Accounting & Finance 62 (2022) 2807–2838
Is the extractive industries standard still fit for purpose?
Corinne Cortese , Lee Moerman, Millicent Chang

UOW School of Business, University of Wollongong, Wollongong, NSW, Australia
Abstract
The application of AASB 6 by extractive industries firms is examined to

determine the issues and challenges faced by financial statement preparers when
applying the standard. The results show that while the area-of-interest method
is extensively chosen to account for exploration and evaluation costs, there was
lack of consistency in its description. Interviews revealed that while preparers
reported flexibility in the application of AASB 6, they sought more guidance to
reduce reliance on external publications. The findings show that while
preparers supported the retention of AASB 6, more guidance on its application
was needed, especially in its interaction with new accounting standards and
regulations.
Key words: AASB 6; Area of interest; Extractive industries
JEL classification: M41
doi: 10.1111/acfi.12893
1. Introduction
The extractive industries represent a significant share of global capital, and

include many of the world’s largest companies (Gray et al., 2019). Having
substantial social, political and environmental impacts, the economic strength
of the major extractive industries companies is such that many are richer and
more powerful than the countries that seek to regulate them. For example, in
2018, the world’s top 40 mining companies made revenue of $US683 billion
(Pricewaterhouse Coopers, 2019). In 2019, revenue for the oil and gas sector
globally was $US2.47 trillion (Turak, 2020). In comparison, Australia’s
estimated gross domestic product for 2019 was $A1.89 trillion (Australian
Bureau of Statistics, 2020). The scale of economic influence of oil, gas and
mining companies and the acknowledged diversity in their reporting practices
prompted the International Accounting Standards Boards (IASB) predecessor,
Please address correspondence to Millicent Chang via email: mchang@uow.edu.au
© 2021 Accounting and Finance Association of Australia and New Zealand.

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2808 C. Cortese et al./Accounting & Finance 62 (2022) 2807–2838
the International Accounting Standards Committee, to consider regulating

specific accounting disclosures for the extractive industries.
The Extractive Industries Project commenced in 1998. An Issues Paper was
subsequently released in 2000, followed by a new accounting standard in 2004,
IFRS 6, to specifically account for Exploration for and Evaluation of Mineral
Resources. Exploration and evaluation (E&E) phases are defined as ‘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’ (IASC Foundation, 2004). Defining such a narrow
scope for IFRS 6 was intended to be an interim measure (IASC Foundation, 2004;
IASB, 2010; Nobes and Stadler, 2021). However, apart from a reassessment of
IFRS 6 in 2010 (IASB, 2010), the extractive industries remained absent from the
IASB’s agenda until September 2018 when the IASB announced the commence-
ment of a project to decide whether it should replace IFRS 6 with a revised or more
comprehensive standard (IFRS, 2018).
As part of this project, the IASB obtained information from the four national
accounting standard setters that contributed to the 2010 reassessment through the
Extractive Industries Discussion Paper: Australia, Canada, Norway and South
Africa. This paper reports on the project we completed for the Australian
Accounting Standards Board (AASB) as input to the IASB’s consultation process
on the current project on the extractive industries. Australia is a key player in this
space, given the importance of the extractive industries to the national economy.
Australia’s equivalent of IFRS 6, AASB 6 Exploration for and Evaluation of
Mineral Resources, was issued in 2015 and is largely consistent with IFRS 6, except
for the inclusion of additional Australia-specific paragraphs relating to the scope,
measurement and recognition of E&E expenditures (AASB, 2015). IFRS 6
currently grants reporting entities the capacity to develop their own accounting
policies for the treatment and recognition of E&E expenditures, meaning that firms
have been permitted to adopt their treatment of choice, typically the full cost or
successful efforts method or a variation thereof (IASC Foundation, 2004;
Constantatos et al., 2020; IASB, 2020; Stadler and Nobes, 2020). The Australian
adaptation of IFRS 6 narrows treatment by specifying the use of the area-of-
interest method for Australian reporting entities. The range of outcomes that arise
through the application of either IFRS or national equivalents has impeded
consistency and the quality of financial reporting (Stadler and Nobes, 2020). Given
that no other jurisdiction offers guidance on accounting practice beyond that
contained within IFRS 6, the AASB is well placed to contribute to the development
of an extractive industries accounting standard that meets user needs and enhances
external reporting quality.
To determine whether the standard was fit-for-purpose, the IASB was
particularly interested in understanding whether any significant changes had
occurred in the extractive industries in terms of accounting policies: financial
reporting issues; scope of the industries; reserves and resource classification

C. Cortese et al./Accounting & Finance 62 (2022) 2807–2838 2809
systems; and regulatory requirements. Given that firms account for almost 50
percent of global greenhouse gas emissions, these questions were especially
pertinent given the direct impact of climate change initiatives on the extractive
industries (IRP, 2020). For example, firms disclose significant value through
their reserves which are at risk of becoming ‘stranded’ or impaired due to steps
taken to combat climate change. Baboukardos et al. (2021) found that only 60
percent of firms in the extractive industries provide a reserves/resources
statement, 10 percent include climate change risks in future cash flow
estimations as part of impairment calculations, and no firms identify climate
change risk as important in determining assets’ useful lives. Besides indicating
that firms need to do much more to recognise climate change risks in financial
reporting, these results also signal prospective amendments to accounting
standards such as IAS 36 (Impairment of Assets) and IAS 37 (Provisions,
Contingent Liabilities and Contingent Assets). The changing environment for
extractive industries firms is also reflected in the review of environmental, social
and governance (ESG) reporting by Gray et al. (2019). They conclude that the
quantity and quality of ESG reporting by these firms are affected by regulation,
taxation, legitimacy concerns, pressure groups and credibility. These changes,
and others, have been significant for the extractive industries both locally and
globally. Therefore, the objective of this paper is to assess the current state-of-
play in the Australian extractive industries in relation to the scope and purpose
of AASB 6, especially in the current operating environment. In doing so, we
were also guided by the questions posed by the IASB to national accounting
standard setters. We follow up with recommendations for standard setters
based on this evidence.
The paper contributes to the 2018 IASB Extractive Industries Project by
recommending the IASB retain IFRS 6 with more guidance on specific areas
where preparers of financial statements have experienced difficulties applying
the standard due to the flexibility allowed. Preparers require a dedicated
extractive industries standard to accommodate its unique characteristics of
risk/reward business model and tangible/intangible nature of E&E assets.
Additional guidance is needed in existing policies such as expense and
capitalisation, and definition and scope of area of interest, while the newer
areas of impairment, joint financing arrangements and merging of mining
practices are also in need of guidance.
The remainder of the paper is organised as follows: Section 2 reviews the
various measurement and recognition issues associated with the accounting
treatment for E&E activities, and the literature review is presented in Section 3.
We then describe our three-phase method of collecting and analysing data,
followed by a detailed description of our sample of ASX-listed companies in
Section 4. In Section 5, the empirical and interview data is analysed. To assist
the interview process, we adopted the IASB’s guided questions (see
Appendix I). We conclude with the recommendations provided to the AASB
alongside our own research insights from the project in Section 6.

2. Background: exploration and evaluation
The E&E activities of extractive operations occur in upstream phases of

production to determine whether a resource deposit exists, and whether its
extraction is economically viable (Wise and Spear, 2002). While risk is ‘endemic
to the industry’ (Wise and Spear, 2002, p. 3), these exploration and evaluation
activities are arguably the most risky given the high likelihood of unsuccessful
exploration ventures relative to successful ones (Katz, 1985; Wise and Spear,
2002). Risk variables such as changing technology, market fluctuations,
changes in the political or legal environment, and altered time horizons may
render an expensive exploration effort uneconomical. Since costs at this pre-
production stage are difficult to define and thus measure, categorise and
recognise in a standardised form, long-standing and controversial issues exist
for standard-setters (Van Riper, 1994). Different accounting treatments are
used to deal with E&E costs – Stadler and Nobes (2020) identify nine methods
of accounting for these costs (see also Constantatos et al., 2020); however, these
methods fall within the spectrum of two established ends known as successful
efforts accounting and full costs accounting, which we review below, in
additional to the hybrid area-of-interest method that is used in Australia.
2.1. Full cost method versus successful efforts method
Over time, different measurement and recognition methods have developed

to determine the scope of recognition of E&E costs. The full cost method
capitalises all E&E costs, even those related to unsuccessful exploration
ventures, until they can be written off against revenue from successful projects
(Flory and Grossman, 1978). According to the successful efforts method, only
costs related to potentially successful exploration projects are capitalised. The
E&E asset is subsequently amortised in accordance with the revenue generated
from successful projects (Katz, 1985; Van Riper, 1994). Both methods have
intuitive appeal. For the ‘full costers’, unsuccessful exploration efforts are still
important to the broader agenda of discovering economically recoverable
reserves – no result is still a result. On the other hand, the successful efforts
method more closely adheres to the matching principle (Van Riper, 1994).
The debate over method, however, is more than just a philosophical
difference of opinion regarding generally accepted accounting principles. Both
methods have a significant impact on the reporting of income versus assets
(Neveling, 2005). For example, the full cost method inflates reported asset
values. This is of vital concern for ‘junior’ exploration companies in the early
stages of operation in an attempt to signal potential performance to the market
(Van Riper, 1994). The larger, established companies are more readily able to
absorb the costs of unsuccessful projects and historically favour the successful
efforts method (Katz, 1985; Van Riper, 1994; Pricewaterhouse Coopers, 2017).

The full cost versus successful efforts debate first rose to prominence in the
United States in the 1970s (Zeff, 1978; Van Riper, 1994). Following the Middle
East oil embargo of 1973, the Securities and Exchange Commission (SEC) was
charged with developing accounting standards that would support the nation’s
oil and gas industry (Flory and Grossman, 1978). The lobbying effort against
the elimination of the full cost method in the proposed standard led to one of
the ‘most intensely politicised accounting arguments ever’ (Van Riper, 1994 p.
64). Subsequently, both the full cost and successful efforts method are
permitted (Flory and Grossman, 1978; Smith and Dyckman, 1981; Larcker and
Revsine, 1983; Katz, 1985; Van Riper, 1994; Cortese, 2011).
At the international level, the IASB issued IFRS 6 as an interim standard in
2004 pending a comprehensive review of the Extractive Industries Project. In
the discussion phase of the process, the standard setters and interested players
clearly preferred the successful efforts method, with 78 percent agreeing and the
remaining 22 percent arguing for choice between the successful efforts and full
cost methods (Cortese and Irvine, 2010). The resulting interim measure allowed
entities to ‘continue to use the accounting policies applied immediately before
adopting the IFRS’ (IASC Foundation, 2004), in effect allowing companies to
use whichever method was deemed most appropriate for the purpose of
reporting E&E expenditures (Nobes and Stadler, 2021). As noted, the
Australian IFRS equivalent, AASB 6, also permits a third variation, the
area-of-interest method, for the Australian extractive industries sector.
2.2. The area-of-interest method
The area-of-interest method is widely practised by Australian extractive

industries entities, a consequence of the requirements of AASB 6, which must
be used by all entities listed on the ASX (Constantatos et al., 2020; IASB,
2020). AASB 6 includes Australian-specific paragraphs that also allow the
treatment of E&E expenditures in the context of areas of interest (AASB, 2015,
p. 6, emphasis in original).
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. . . . In most cases, an area-of-interest will comprise a single mine or
deposit or a separate oil or gas field (AASB, 2015, AASB 6, para. AUS7.3).
In addition, the recognition of an area-of-interest only occurs when the rights
of tenure exist (AASB, 2015, AASB 6, para. AUS7.2). In circumstances where
the determination of success cannot be made, companies are also permitted to
capitalise E&E expenditure until such time that the success or failure can be
ascertained (AASB, 2015). Therefore, the area-of-interest method is a hybrid of
the full cost and successful efforts methods insofar as it permits the entire
amount of E&E expenditure to be capitalised within a specific area that is
across several mining leases. As noted, Australia’s unique adaptation of IFRS 6

and the inclusion of the area-of-interest method has endured despite several
efforts at the international level to develop a ‘permanent’ standard for the
extractive industries.
3. Literature review
While relatively few studies have been conducted on firms in the extractive
industries specifically addressing accounting for E&E, they can be broadly
grouped under three themes: diversity in accounting treatment of E&E
expenditure, value relevance of E&E expenditure, and standard setting and
IFRS.
Pre-IFRS, Luther (1996) noted significant diversity in accounting in
extractive industries firms in Australia, Canada, South Africa, the UK and
the US due to the absence of a mandatory accounting standard. Under IFRS 6,
there have been several studies, such as Power et al. (2017) on extractive firms
in the UK over the period 2006 to 2012; Abdo (2016) on oil and gas firms,
essentially UK-based due to number of UK firms in the sample, and the IASB
(2020). The IASB conducted a cross-country study of firms in the minerals and
oil and gas sectors in 2018 in North America, Oceania and Europe, indicating
variation in accounting by region and sector where the minerals sector was
more conservative than the oil and gas sector (IASB, 2020). The conclusion was
that IFRS application resulted in lack of consistency and comparability across
and within jurisdictions. Such diversity was found to impact investors’
decision-making because of uncertainty as to the relevance of the accounting
information provided. Similarly, a recent study by Constantatos et al. (2020)
examined over 1,000 firms across eight countries and found that companies
applied different policies that resulted in materially different outcomes and a
consequent lack of comparability. Therefore, international comparability and
diversity exists; however, how preparers address this diversity in practice is not
well understood.
The extractives sector operates in an environment of uncertainty due to the
nature of exploration, volatility in prices of minerals and oil and gas and,
combined with diversity in accounting, contributes to information asymmetry
between investors and firms (Gray et al., 2019). A few studies have investigated
the value relevance of diverse accounting treatment, measured as the
association between E&E costs and share prices and returns. Chen et al.
(2018) found that analysts increased forecast accuracy when E&E intensity was
high since managers better communicate future prospects of exploration
projects. Similarly, Zhou et al. (2015) report a positive association between
capitalised E&E expenditures and share prices and a negative association
between E&E expenditures written off and share prices, indicating the value
relevance of these expenditures. While Berry and Wright (2001), Bryant (2003)
and Power et al. (2017) show similar results, Misund (2017) reports the value
relevance of cash flow measures over earnings for oil firm returns. Therefore,

while it is apparent that users accommodate the accounting treatment for E&E
in decision making, it is not clear how preparers incorporate the diversity that
exists between jurisdictions and other accounting standards.
More recently, the focus has turned towards the ability of IFRS 6, in the
context of other accounting standards, to produce information relevant to
investors and other stakeholders in the extractive industries (IASB, 2019).
Linnenluecke et al. (2015) examine the impact of IAS 35 (Impairment of Assets)
on the largest ten Australian metals and mining firms in the year 2013–2014
with stranded assets, reporting that impairment losses averaged $1.144 billion.
With a sample of Canadian oil and gas and mining firms, Schneider et al. (2017)
indicate substantial diversity in practice with about a third of firms strategically
adopting a higher discount rate to avoid major increases in environmental
liabilities upon transition to IAS 37. In terms of diversity in practice and
strategic decision making, tensions between the ability of preparers to provide
value relevant information and users to understand information requirements
is apparent. However, in the recent 2020 staff paper prepared by IFRS (IASB,
2020), the standard setters highlight that preparers were infrequently
questioned by users about how they accounted for E&E expenditure. In the
same vein, feedback from users supported the view that how E&E expenditure
is accounted for is not a priority for them. Therefore, the following analysis
consists of a survey of preparers’ accounting treatment of E&E, followed by
insights regarding the relevance, perceptions of decision usefulness and
application of AASB 6.
4. Method
The project was conducted in three phases to determine current disclosure

practices, changes in disclosure since the IASB last examined the issues in 2010
and interviews to determine issues with the application of the standard in
practice. Phase 1 is a survey of the current disclosure practices from the 2018
Annual Reports of 98 companies listed on the Australian Stock Exchange
(ASX). The companies chosen for analysis were drawn from an ASX
‘Resources Sector Profile’ report, which listed the top 100 resources stocks
for 2018, ranked by market capitalisation, as well as 15 recent initial public
offerings (IPOs). Companies that did not engage in upstream activities, and
therefore did not have E&E expenditure, were excluded from the analysis, as
were companies for which a 2018 Annual Report could not be obtained (see
Appendix II for full list). While there are many hundreds of resources stocks
listed on the ASX, these 98 companies represent a market capitalisation of
$515,354 million and include many of the world’s largest multinational
resources companies (Australian Stock Exchange, 2018). They also represent a
cross-section of industry sub-sectors including diversified metals and mining,
oil, gas and consumable fuels and gold, and range in size from ‘large-cap’
stocks to recent IPOs. The sample is ideal for assessing the extent to which

IFRS 6 and AASB 6 is applied in practice, and, by extension, explore

impediments to its usefulness. In this first phase, the annual reports for each of
the 98 companies was downloaded from the company website. Data was
extracted from each report manually by a research assistant and member of the
research team to garner specific information about the company’s E&E
activity. The treatment of E&E activities – for example according to an area-of-
interest, successful efforts or full cost method – was recorded, along with the
amount of E&E expenditure, total assets, whether E&E was given a separate
line item in the financial statements, and any other pertinent information. The
analysis from this phase is reported in Section 5.1.
Phase 2 considered whether any significant regulatory or other industry-
relevant changes had impacted reporting practices since the IASB last
examined this issue at the time of their 2010 Discussion Paper. To do this,
we selected a sub-sample of 36 companies and examined their annual
reports for the years ended 2010–2017. These 36 companies were selected
based on size and sub-industry. As for Phase 1, the annual report for each
company was downloaded from the company website and data was
extracted manually for analysis. We collected E&E method, expenditure,
total assets, as for the first phase. The analysis from this phase is presented
in Section 5.2. Our analyses from the first and second phases, along with
insights from participating in two AASB roundtable discussions and the
guided questions from the IASB feedback summary (IASB, 2018) informed
our subsequent interview protocol and selection of interviewees for the
third phase of our study. The analysis from this phase is reported in
Section 5.2.
The third phase of the project included interviews conducted with industry
stakeholders in accordance with UOW Research Ethics Protocols.1 The
interviewees comprised eight preparers of financial statements, including two
junior and six large extractive industries entities; two regulators; and two
accountants from Big 4 firms.2 Two of the industry preparers reported on the
operations of non-listed wholly owned subsidiaries. This information provided
a different perspective of preparer needs. The length of each interview was
approximately 45–60 minutes. The interviews were recorded and transcribed
verbatim by a professional transcriber. The research team initially analysed the
interview transcripts using a combination of guided and open coding. The
guided coding involved grouping responses according to the questions that
were specifically asked of participants (see Appendix I). As noted, the IASB
directed national standard setters to consider particular issues as part of their
consultation process for the extractive industries standard. Those issues
1
UOW Human Research Ethics Protocol number 2018/482.
2
In our analysis, and in accordance with UOW ethics protocols, we do not identify our
interviewees.

covered matters such as whether there had been significant changes in national
accounting, financial reporting or regulatory policy, and whether there had
been changes in jurisdictional scope, activity and risk profiles, and reserves and
resource classification systems and data from Phases 1 and 2 are expected to
reflect these matters. The guided coding of responses according to the questions
asked and responses given made it possible to identify several themes emerging
in the data. This led to open coding of the data and identification of themes
related to disclosures in the extractive industries, particularly around the
application of AASB 6. The research team reviewed the themes to identify key
concepts from the analysis to develop a range of issues for consideration and
recommendations. The analysis from this phase is reported in Section 5.3.
5. Analysis
5.1. Phase 1: Firm practices in 2018
Figure 1 shows the breakdown of the 2018 sample of 98 entities by sub-industry.3

Firms in the Diversified Metals and Mining sub-sector comprise almost 40 percent
of the sample, while Oil, Gas and Consumable Fuels, and Gold each account for
23.5 percent. The remainder is made up of Steel (9 percent), Copper (3 percent) and
Precious Metals and Minerals (1 percent).
Of interest is the mean E&E assets across our sample. With reference to
Figure 2, the mean E&E assets reported by IPOs is $6.8 million; this figure
increases to $60 million in small-cap firms, $256 million in mid-cap firms and
$367 million in large-cap firms. Notable in Figure 2 is the proportion of E&E
assets relative to total assets across our sample. For the IPO and small-cap
firms, the proportion of E&E assets to total assets is high compared to that of
the mid- and large-cap firms. For some of the small-cap firms, E&E assets
represented over 90 percent of the total asset base of the entity, making the
method of accounting for these assets of significance when reflecting on their
position in financial statements.
The area-of-interest method is by far the most extensively chosen method by
firms in the 2018 sample (see Figure 3). This method is used by 80 percent of
firms, followed by the expense-then-reinstate method, applied by 9 percent, and
the successful efforts method by 7 percent of the sample. These figures are
comparable to Nobes and Stadler (2021) where the proportion of Australian
3
See Appendix II for the list of companies. The list of 98 entities was drawn from a 2018
ASX Resources Sector Profile publication, which lists the top 100 ASX stocks for 2016–
2017 in addition to 15 ASX Initial Public Offerings for the same period. Of those 115
stocks, 17 were excluded because they were extractive industries services companies,
rather than directly engaged in extractive operations, leaving 98 companies in the 2018
sample for analysis.

9.18% 3.06%
1.02%
23.47% 39.80%
23.47%
Copper Diversified Metals and Mining

Gold Oil, Gas & Consumable Fuels
Precious Metal & Minerals Steel
Figure 1 2018 sample of 98 companies, by sub-industry. [Colour figure can be viewed at
wileyonlinelibrary.com]
firms choosing the area-of-interest method is 68 percent,4 and Constantatos et al.

(2020), who reported 86 percent of Australian firms in their sample reporting
according to the area-of-interest method. One firm, Kirkland Lake Gold Ltd, a
Canadian company also listed on the Toronto Stock Exchange, uses the full
cost method.
Given the extensive use of the area-of-interest method in practice, we then
identified the way it is operationalised for reporting. The analysis shown in
Figure 4 sets out how the area-of-interest is defined by firms in the energy sector
(Oil, Gas and Consumable Fuels) compared to the materials sector (Diversified
Metals and Mining, Gold, Steel and Copper). In 2018, 37.5 percent of energy firms
defined an area-of-interest by geographical/geological area, 37.5 percent by rights
of tenure, with the remaining 25 percent defining area-of-interest by legal rights to
explore. For materials firms, an area-of-interest was defined according to the rights
of tenure for 46.7 percent of the sample with a further 13.3 percent as the legal rights
to explore. There was more variation in this sub-sector with 33 percent either not
disclosing or providing a clear definition.
The following section provides a comparison of E&E disclosure practices
from the previous review of IFRS 6 in 2010 until 2017 to determine any
significant changes over time.
4
We are unable to compare the various methods directly due to more granular
classifications applied in Nobes and Stadler (2021).

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
IPO Small-cap Mid-cap Large-cap
E&E Assets 6.8 59.6 256.2 366.9
Total Assets 11.7 371.6 2267.1 26273.4
Figure 2 2018 sample: total assets and E&E assets. [Colour figure can be viewed at
5.2. Phase 2: Company practices in Australia (2010–2017)
As noted, 36 companies from the above cohort were chosen as a sub-sample

for further analysis.5 The breakdown of the 2010–2017 sample (see Figure 5), is
as follows: Oil, Gas & Consumable Fuels, 36 percent; Diversified Metals and
Mining, 33 percent; Gold, 19 percent; Steel, 8 percent; and Copper, 3 percent.
Like the 2018 sample, Oil, Gas and Consumables, Diversified Metals and
Mining and Gold firms comprise 90 percent of the sample of firms in extractive
industries.
In the 2010–2017 sample, the area-of-interest method was also the method of
choice among firms, like the 2018 sample. In the materials sector, over 90
percent of firms chose the area-of-interest method (see Figure 6a), while in the
energy sector the comparative figure is around 75 percent (see Figure 6b). This
finding is consistent with Constantatos et al. (2020) who reported the general
tendency of companies in their sample to capitalise E&E expenditure. The
breakdown within the sector is consistent with the findings of Nobes and
Stadler (2021) and IASB (2020) where the materials sector is reportedly more
conservative in accounting treatment than the energy sector. There is also more
variation in accounting treatment in the energy sector, with 18 percent of firms
selecting the successful efforts method, while 8 percent chose the full cost
method. In both sectors, the method of choice became more evident over time
(see Figure 7).
5
See Appendix III for the list of companies.

120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
Large-cap Mid-cap Small-cap IPO All
Successful Efforts 2.04% 4.08% 1.02% 7.14%
Full Cost 1.02% 1.02%
Expense 1.02% 1.02% 1.02% 3.06%
Expense-then-reinstate 2.04% 6.12% 1.02% 9.18%
Area-of-interest 7.14% 13.27% 48.98% 10.20% 79.59%
Area-of-interest Expense-then-reinstate Expense Full Cost Successful Efforts
Figure 3 2018 sample: accounting method for E&E assets. [Colour figure can be viewed at
8 7
7
6
5 4
4 3 3
3 2 2
2 1 1
1
0
Legal rights to
Geological area Rights to tenure Not Disclosed Unclear
explore
Materials 1 2 7 4 1
Energy 3 2 3
Materials Energy
Figure 4 2018 sample: how the area-of-interest is defined. [Colour figure can be viewed at
Similar observations to the 2018 sample were evident across this sample with
both rights to tenure and geographical/geological area defining the area-of-
interest in energy firms, and rights to tenure defining the area-of-interest in
materials firms.
The Phase 1 and 2 analysis highlights several issues in the Australian context.
First, the area of interest method is the most extensively chosen method by
firms in both the Materials and Energy sector, especially by small-cap firms.
Second, variability exists in the description of an area-of-interest. This presents
as a lack of consistency in disclosure of E&E assets and consequently difficulty

8.33% 2.78%
33.33%
36.11%
19.44%
Copper Diversified Metals and Mining

Gold Oil, Gas & Consumable Fuels
Steel
Figure 5 2010–2017 sample of 36 companies, by sub-industry. [Colour figure can be viewed at
in ascertaining compliance with AASB 6. For example, while Iluka (2017, p. 94)
states that ‘[e]ach area-of-interest is limited to a size related to a known mineral
resource capable of supporting a mining operation’ and Woodside (2017, p.
112) describes their area-of-interest as ‘a geographical area’, BHP Billiton
(2017) does not offer a definitive description on how an area-of-interest is
determined for its operations. Finally, reporting practice has remained
relatively consistent across the sectors since 2010, with an improvement in
the disclosure of how the area-of-interest is defined as the unit of account for
E&E assets.
5.3. Phase 3: Interview and documentary evidence
Phase 3 incorporates both documentary and interview data we collected to

provide further insight into the issues identified by preparers using AASB 6.
For example, where an interviewee referred to reports or other sources of
guidance to substantiate an accounting treatment, we accessed these documents
to supplement the interview analysis. As noted, we conducted 12 interviews,
obtaining information from preparers, auditors and regulators, about the
application of AASB 6 and its fitness for purpose. Flexibility and lack of
guidance in the standard were recurrent themes across all our interviewees, with
little variation even across groups.

(a) 100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2010 2011 2012 2013 2014 2015 2016 2017
Area of Interest 94% 90% 95% 95% 90% 91% 90% 92%
Full Cost 4%
Not Defined 5% 5%
Successful Effort 4%
Unclear 6% 5% 5% 5% 5% 9% 10%
Area of Interest Full Cost Not Defined Successful Effort Unclear
(b) 90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2010 2011 2012 2013 2014 2015 2016 2017
Area of Interest 73% 73% 73% 83% 82% 75% 75% 75%
Full Cost 0% 0% 0% 0% 0% 8% 8% 8%
Not Defined 9% 9% 9% 0% 0% 8% 0% 0%
Successful Effort 18% 18% 18% 17% 18% 8% 17% 17%
Figure 6 (a) 2010–2017 method of choice, materials. (b) 2010–2017 method of choice, energy.
[Colour figure can be viewed at wileyonlinelibrary.com]
5.3.1. Accounting policy
As noted, the last major review of the extractive industries accounting policy
and practice at the international level occurred in 2010. At that time there was

60%
50%
40%
30%
20%
10%
0%
Energy Materials Energy Materials
2014 2010
Geographical/geological aributes
22% 11% 25% 9%
and area
Legal rights to explore 22% 11% 13% 17%
Rights of tenure 33% 50% 38% 39%
Unclear 22% 6% 25% 26%
Not disclosed 11%
Geographical/geological aributes and area Legal rights to explore

Rights of tenure Unclear
Not disclosed
Figure 7 2010–2017 sample: How the area-of-interest is defined over time. [Colour figure can be
viewed at wileyonlinelibrary.com]
consensus that the Extractive Industries Project was important and worthy of
continued consideration by the IASB. Similarly, our interviewees were of the
view that the extractive industries accounting standard was important and in
need of revisiting, especially on the issue of guidance:
. . . between the release of the Discussion Paper in 2010 and where we’re at today,
not much has changed from a standard-setting perspective. In terms of IFRS 6 . . .
that is an area where there is still lack of clarity as to what the accounting should be
(Interviewee 3).
. . . the challenge I see with the extractive industries is that there is really a lack of
clear guidance . . . we have IFRS 6 for exploration and evaluation, but that was
really a temporary solution from quite a while ago (Interviewee 4).
. . . we would see it as an application-guidance issue . . . we have to borrow [from

other standards] because [an issue] is not spelled out in AASB 6 (Interviewee 8).
Our interviewees frequently noted the lack of clear guidance in the
accounting standard as an impediment to practice and the interpretation of
accounting reports:
. . . between companies or among [sub] industries there is inconsistency. Unless you
really have good knowledge of the accounting choices people are making, you
wouldn’t realise people can actually do whatever they want. And when we really
deal with mining or resources, especially when you acquire companies and you get

that huge mining property or oil and gas property on your balance sheet, there’s no
applicable standard (Interviewee 4).
. . . as a general comment there is a lack of specific guidance . . . and it’s up to

individual players to make their own interpretation (Interviewee 6).
Historically, accounting practice for the extractive industries has evolved
over time and in response to the needs of sub-industries operating in particular
jurisdictions. This has meant that there are several acceptable ways to recognise
the same expense. As noted by our interviewees:
. . . you end up in this conundrum of everybody think[ing] what they’ve done is
appropriate and justifiable. The application guidance . . . the disclosure guidance in
the standard . . . that’s where it needs to be enhanced, just to avoid potential
inconsistency (Interviewee 5).
. . . when the standard came in, the difficult around it was applying the IFRS
principles in light of [this]. So, they came up with a solution where companies were
essentially able to continue on with their accounting policy (Interviewee 11).
IFRS 6 provides limited guidance, which also affords reporting entities
significant flexibility. Not ‘necessarily on purely the classic areas of, let’s say,
exploration-evaluation-type costs, but even on other things, revenue recogni-
tion and the like’ (Interviewee 12). As noted by our interviewees:
. . . we are able to build up an argument that ‘I can keep this expenditure on the
books because in some way it supports my interpretation of this area’ (Interviewee
11).
. . . [people] just exercise their judgement . . . I think the standard supports them one
way or another there (Interviewee 9).
. . . having flexibility is good, but there are cases where we struggle to get guidance
when we need it . . . whether that’s from the accounting firms or speaking to peers
in the industry, we kind of look around to others for an answer (Interviewee 12).
While the flexibility in AASB 6 has meant that ‘having room to move gives
you room to move’ (Interviewee 12), it is a double-edged sword. Many of our
interviewees felt that the standard was ambiguous and required too much
reliance on external guidance such as the IFRS publication ‘Financial
Reporting in Oil and Gas’ and ‘Financial Reporting in Mining’. One
interviewee referred to these publications as ‘our bible, just because the
accounting standard is so unclear’ (Interviewee 4). Another interviewee noted
the difficulties faced when trying to apply accounting standards to a range of
extractive activities:
. . . it could be useful if the standard contemplates areas beyond just the E&E or the
asset-accounting side . . . [if it] looks at revenue streams . . . there are a bunch of

other areas where there are unique characteristics of the industry that might benefit
from being specifically addressed (Interviewee 12).
Despite the flexibility permitted under IFRS 6, many of our interviewees
noted that the additional guidance provided by the Australian-specific sections
of AASB 6 were viewed as an improvement over IFRS 6:
The move to IFRS was seen as a positive move to standardise practice in the
industry, resulting in less cowboys out there (Interviewee 5) . . . [however] there’s no
doubt that the Australian version of the standard, AASB 6, is far superior to the
IFRS one (Interviewee 6).
Our starting point is the area-of-interest. I think that makes sense, and I think it’s
good that we actually have had that added in, because it gives that clarity that the
international version doesn’t (Interviewee 8).
Whether or not to capitalise E&E expenditure was only a concern for
preparers opting not to expense the costs as incurred. While most of our sample
(see Figure 2) opted to capitalise E&E expenditure using the area-of-interest
method, among our interviewees the approach varied from a very prudent and
conservative treatment of expensing all E&E costs as incurred; to the more
aggressive approach of capitalising as much as possible within a particular area.
Consistent with the literature review in Section 3, one of our interviewees noted
that the treatment of E&E expenditure depends on the size of the company:
If you’re a large company, you expect to be incurring these costs on an annual
basis, whereas if you’re a smaller entity and you’ve only got the one mine, it’s
probably more of an issue in terms of that lumpiness (Interviewee 10).
The larger companies tended to use a more conservative approach to
determine whether to capitalise, such as a threshold of two-thirds, or twice as
more likely than not (Interviewee 10); materiality; and the percentage of E&E
to total development and production (Interviewee 11). For listed companies,
however, the ASX does not count capitalised E&E as an asset for the net
tangible assets test6 (Interviewees 1 and 2). On the other hand, investors and
management of smaller companies may take a less conservative approach and
view the E&E asset as a ‘holding pattern, almost like a work in progress’ and
worth holding on the balance sheet until a call is made one way or the other
(Interviewee 9). For example, one interviewee from a junior listed entity ‘wasn’t
comfortable with that [expensing all exploration] . . . so I moved it . . . to what I
saw as consistent with IFRS accounting principles’ (Interviewee 11). This was
not surprising since the smaller companies are ‘capitalising their exploration
and searching for fundraising opportunities to continue their exploration
activities’ (Interviewee 1).
6
However, they are required to pass the market-capitalisation test of $15 million

The decision to capitalise or expense is not made in isolation. Other factors,

such as a ‘conversation’ between the company preparers, auditors and
regulators (Interviewee 9), were important. There is a balance between
‘expensing everything’ and ‘stacking things onto your balance sheet to avoid
taking it through the P&L’ (Interviewee 9). However, once E&E was
capitalised, issues related to asset recognition and impairment were important
considerations in future periods. Impairment was frequently noted by
interviewees as an area for concern under the standard and is considered in
the following section along with other accounting standards that were deemed
problematic by interviewees.
Several recent amendments to standards made by the IASB, and
subsequently the AASB, have affected extractive industries reporting (Inter-
viewee 3), including changes to leasing, revenue recognition and the definition
of assets and liabilities. For example, in terms of AASB 16 (Leases), if a leased
asset is used in closure and remediation activities, the accounting treatment
creates a closure liability and a lease liability (Interviewee 10). Lease accounting
becomes even more complicated in situations where a company is carrying out
capital works as part of a mine closure. If, for example, an owned asset is built
on leased land, there is an issue around whether the closure rehabilitation
obligation is part of the tangible asset or part of the leased asset (Interviewee
10). As the importance of closure and rehabilitation obligations increases in
future, knowing how to account for them is going to become critical and, at
present, ‘there is not a huge amount of guidance on [this]’ (Interviewee 10).
One of the problems of recognising E&E assets is the difficultly of
determining continued feasibility. Once mining rights are secured, the
uncertainty that remains is invariably around determining recoverability. It is
only when a company ‘continues to expend resources and more granular
exploration results are realised that an implicit signal’ exists (Interviewee 3).
The inherent riskiness of the industry and the ‘uncertainty of the number on the
balance sheet’ (Interviewee 8) means that the accounting issues for the
extractive industries are difficult to resolve, especially ‘since in most cases there
will be future economic benefits’ (Interviewee 11). As one interviewee argues:
. . . even the discovery of non-commercial hydrocarbon from a particular well, you
still get data. They’re still part of the activity, and the cost of a well in an area-of-
interest, you need to know that for your development plan. So that actually is
valued regardless of whether the development is successful (Interviewee 12).
In other words, no result is still a result. It tells you ‘not to go back there’
(Interviewee 12).
At the end of the day, the degree of flexibility in how AASB 6 is applied
comes down to the rigour of the annual assessment of carrying balances for
impairment (Interviewee 9). However, in our study, while several interviewees
raised the issue of impairment, there was little obvious sentiment to ‘do away
with’ capitalised exploration expenditure. Especially, since ASIC has been

involved in ensuring that ‘impairment considerations are appropriate’

(Interviewee 8; Interviewee 9; Interviewee 11).
. . . impairments [are] typically sold to investors as Oh, look, it’s a non-cash item,
blah blah blah . . . which has made investors sceptical about the carrying value of
intangibles . . . if people are doing back-of-the-envelope evaluation of exploration
intangibles, then that kind of says that we may not be meeting their needs
appropriately (Interviewee 9).
In Australia assessing intangible assets is about a consistency in accounting
treatment, rather than following the guidance provided in the standard. Some
interviewees sought guidance from other jurisdictions or industry practices,
with one preparer (Interviewee 8) commenting, ‘I could come up with 10 other
different reasons’ for a particular treatment and they could ‘all be equally
valid’. Similarly, the Canadian response to the IASB was that most users are of
the opinion that expensing all E&E would reduce diversity in practice
(Accounting Standards Board, 2019).
5.3.2. Joint Ore Reserves Committee (JORC)
The industry resources that our interviewees often mentioned as helpful for
determining their assessment of resources are the Joint Ore Reserves
Committee (JORC) Code for the mining industry, and the Petroleum
Resources Management System (PRMS) Guidelines for the oil and gas
industry.
They [the accounting standard setter(s)] should probably keep harmonised, or
consolidate with or somehow get in line with the JORC statement. Because the
JORC statement is done based on some rules and organisations that know what
they’re talking about. And the standard and the JORCs can come in line and
harmonise. I think that’s how the accounting should go in the future (Interviewee
2).
These resources provide guidance for the definition, classification and
estimation of mineral and oil and gas reserves (Australasian Joint Ore Reserves
Committee, 2019; Society of Petroleum Engineers, 2019). One of our
interviewees noted that the JORC Code is ‘key to determining what the
production profile and useful life of the assets are’ (Interviewee 10). The
estimations of resources and reserves that are determined under JORC and
PRMS guidelines are ‘critical to understanding company value . . . and drive a
lot of the accounting achievement’ (Interviewee 12), while also being ‘very
important when looking at impairments for cash generating units’ (Interviewee
10). A ‘competent person’ is responsible for the preparation of the JORC or
PRMS report, and the calculations therein are integral to the published
financial metrics in the annual report. As one interviewee noted: ‘I think it is
fair to say that it [the JORC statement] carries the gravitas that an audit report
would carry’ (Interviewee 9).

JORC Code does impact a number of areas. So if you look at resources and
reserves, they’re very important when looking at impairments for cash generating
units, and also setting depreciation lives and asset lives (Interviewee 4).
Similarly, in Canada’s response to the IASB, the Accounting Standards
Board (AcSB) found that many users relied on disclosures beyond those in
financial statements such as industry standards (Accounting Standards Board,
2019).
5.3.3. Environmental sustainability
Several interviewees noted increasing environmental obligations as part of

the changing profile of the extractive industries sector: ‘over the last ten
years the focus on environment has increased exponentially’ (Interviewee 7).
This focus on sustainability has resulted in an increase in the number of
contracts embedding financial penalties and termination clauses for breaches
or non-performance in environmental performance. Thus, sustainability
issues have ‘turned into risk by virtue of the fact they [contracting parties]
have more focus . . . on levers to pull under the contract to change the
outcome’ (Interviewee 7). Therefore, in the last decade, the environmental
aspects of operations have become a major issue with a ‘significant
evolution in sustainability-type reporting’ (Interviewee 12). For example,
climate change and the accounting treatment of carbon-offsets and ‘assets’,
especially the determination of impairment regardless of whether there is a
market or not (Interviewee 12). The thermal coal industry in particular is
‘getting a lot of pressure from financiers, from shareholders, from insurers
. . . And I think life is a whole lot more difficult for them’ (Interviewee 9).
While there is only a small percentage of coal produced in Australia for
energy production (Interviewee 7), it ‘will be too difficult for them to
participate in the public market, and therefore will go into private hands’
(Interviewee 7). The focus on a low-carbon economy has meant discounting
because of the implications of climate change (Interviewee 9).
Related to environmental sustainability, impairment and estimations of
useful life is accounting for the decommissioning, restoration and removal of
mining sites. While IFRS 6 and AASB 6 focus on E&E matters, of increasing
importance is the issue of mine closure (Interviewee 10, also noted above in the
context of leasing). The extractive industries have traditionally provisioned for
the restoration and decommissioning of mining sites as a directive of AASB 137
(Provisions, Contingent Liabilities, and Contingent Assets). One interviewee
noted the ‘different definitions’ related to closure provisions and the likelihood
that this is a ‘big number’ and one that is ‘underreported across all of mining’
(Interviewee 10). There was further concern associated with the difficulty of
determining the restoration requirements: ‘what condition do you have to put it

back to . . . green rolling hills with kangaroos . . . or an industrial park’

(Interviewee 10).
5.3.4. Financing, commodities and technological change
With the development and changes in the extractive industries, financing

arrangements to facilitate operations has also changed. Many extractive
operations have also become more complex as different types of commodities,
such as coal seam gas (CSG), have become commercially viable as a result of
technological developments in extraction techniques. Some of our interviewees
commented on these developments, which are considered here.
The issue of innovative financing was borne out by several interviewees
indicating that ‘many different structures and contracting patterns’ exist
(Interviewee 4). With a downturn in the industry, combined with a global lack
of investor confidence (Pricewaterhouse Coopers, 2015), the extractive
industries have sought alternative and unique financing arrangements, often
related to equity rather than debt funding (Interviewee 4). In addition, in a
volatile industry, financing is particularly difficult for ‘junior explorers’ when
the ‘market is down’ (Interviewee 3). One example of an alternative is the
advent of streaming arrangements, similar to those used in Canada, where a
right to a certain percentage or amount of future production is exchanged for a
significantly discounted upfront payment (Mason, 2018). These arrangements
and contracts can be ‘extremely complex’ (Interviewee 3) and ‘do not find a
natural “home” in the IFRS accounting standards’ (Pricewaterhouse Coopers,
2015, p. 1). Over time, therefore, ‘accountants like us have developed a
definition of our own’ related to reserve and production risk to determine
whether to disclose a mining interest or financial asset. For example, in
streaming arrangements is the royalty payment an interest payment or does it
give rise to a financial asset (contingent consideration) like the treatment used
in the pharmaceutical industry? (Interviewee 4). On the other hand, it may be
‘just a fancy form of debt’ (Interviewee 3), where a lender takes the risks
associated with debt by taking a share of future production for the life of the
asset (Interviewee 3). In summary, from the seller’s perspective is it a sale of an
interest or debt, or a forward sale of a commodity? And, does it give rise to a
tangible or intangible asset for the investor? (Pricewaterhouse Coopers, 2015).
Similarly, the Canadian standard setters found that stream financing caused
‘accounting complexities’ for users and preparers (Accounting Standards
Board, 2019). Therefore, the need for regulation and control, and guidance was
a recommendation made be one interviewee (Interviewee 9).
The emergence of CSG has also led to a situation where ‘people are still
trying to get their heads around how you account for this thing’ (Interviewee 8).
CSG has given rise to a level of ambiguity about the definition of a reserve and
resource (AASB, 2018). This in turn has created questions around the
impairment of a CSG asset (Interviewee 8). In addition, changes in technology

have also affected the nature of resources extracted such as access to

hydrocarbons in extremely challenging and remote environments using ultra-
deep extraction techniques (Interviewee 12).
5.3.5. Risk and governance
The extractive industries are traditionally a high risk/high reward sector

lacking a classic business model (Gray et al., 2019). Several factors have caused
a change in the risk/return profile including: the risk-reward appetite of the
board and management (Interviewee 3); innovation in financing arrangements;
the rise of less conventional resources such as CSG; an increased focus on the
environment and sustainability; the global context; and changes in technology.
In the case of unconventional resources, while the accounting treatment is the
same as for conventional resources it ‘leads to a lot of hours spent by people
trying to nut it out, talking to auditors, and getting it through boards to make
sure everybody’s comfortable with it’ (Interviewee 8). As another interviewee
commented, the engagement of boards with financial statements, especially
around significant judgement calls, has increased (Interviewee 9). At board
level:
when we do JORC, the competent person actually comes to the board meeting, and
they make a presentation that the board has the opportunity to quiz and to push
and pull on some of the fundamental assumptions. Because ultimately the board
needs to then also be happy with those reserves, because they form a critical part of
the calculation of some of the financial metrics that get published . . . I think it’s fair
to say that it certainly carries the gravitas that an audit comment would carry
(Interviewee 6).
Operating overseas also presents challenges and risk, especially security for
staff and sovereign risk which led one interviewee to comment that ‘we
definitely have blacklists on certain opportunities, and certain countries, based
on the level of risk . . . we need board approval through that process . . . in the
best interests of our shareholders’ (Interviewee 7).
6. Concluding comments
To conclude, we use the information provided by our study to provide

informed responses to the IASB guided questions about the Australian
operating environment for the extractive industries (see Appendix I). We
follow with recommendations and indications for further research. In response
to the first question regarding significant changes in the industry that have
given rise to accounting policies and reporting issues, we found the primary
area of concern related to impairment of E&E assets and closure obligations.
The lack of definitive guidance to identify the indicators of impairment and the
approach to assessment was an issue flagged by the IASB in its initial

conversation with the four national standard setters (IASB, 2019). In addition,
the provisioning for site rehabilitation and the difficulties of applying the new
leasing standard (AASB 16) were noted as accounting challenges. In terms of
governance risk, while directors were comfortable with the high risk/reward
environment, they faced significant challenges with changes to the return
profile.
Second, changes in activities and the emergence of new industries included
CSG and the new technologies that have expanded the nature and scope of ore
deposits. Third, JORC is the primary reserves and resource classification
system used by entities in Australia. While it is used extensively in the
measurement of ore reserves, there was a reluctance to extend its scope to
provide a valuation for accounting treatment, such as estimates. Fourth,
changes in the regulatory environment included the new reporting requirements
under the Commonwealth Modern Slavery Act (2018) and the uncertainty
around the future treatment of climate change impacts. The coal industry in
particular was finding a hardening credit market, resulting in the need for
alternate financing arrangements. As stated by one interviewer, some of these
financing arrangements do not find a ‘natural home’ in IFRS. The fifth
question regarding the opportunity to provide evidence of other issues or
significant changes in the extractive industries, are covered in the previous
sections.
Based on the evidence, we make the recommendation to proceed with the
development of amendments to IFRS 6 to enhance disclosure requirements.
Like Stadler and Nobes (2020), Constantatos et al. (2020) and Nobes and
Stadler (2021), we find that the flexibility permitted under the current standard
impedes comparability of annual reports, ultimately impacting on decision
usefulness. A dedicated extractive industries IFRS would enable the unique
characteristics of the extractive industries to be accommodated, particularly
with respect to the risk/reward business model and the hybrid tangible/
intangible nature of E&E assets. We also note several areas where additional
guidance is required including the criteria for expense vs capitalisation;
impairment; joint financing arrangements; emerging mining practices and
commodities; and definition and scope of an area-of-interest. In addition,
expanding the scope of IFRS 6 to include guidance for revenue streams, closure
obligations and impairment of up-stream production assets would also assist
preparers operating in the extractive industry in Australia.
While the strength of this paper is the use of empirically rich data of
preparers, our interview sample could be expanded in number and breadth to
include user groups, including not only investors and analysts but other
stakeholders. Further, given the level and importance of industry involvement
in the process, there is considerable scope to extend the literature on the
concept of politicisation. Researchers such as Van Riper (1994), Cortese and
Irvine (2010), Cortese (2011) and Zeff (2007) have considered in the extractive
industries space the lobbying practices of interested parties and powerful

constituents, and it would be insightful to compare the current efforts with

those of the past.
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Appendix I
IFRS questions for national standard-setters (IFRS, 2019)
a Question 1 – have there been any significant changes in extractive industries

that have given rise to:
i Changes to, or new, accounting policies used by entities;

ii New financial reporting issues; or
iii Changes in the risk profile of entities?
b Question 2 – have there been any changes in activities such that new
industries have been established in your jurisdiction that you consider
should be included in the scope of extractive industries?
c Question 3 – have there been any changes in the reserves and resource
classification systems used by entities in your jurisdiction that have resulted
in a significant change to the reserves and resources calculated by those
systems?
d Question 4 – have there been significant changes in the regulatory
requirements in your jurisdiction to disclose information on extractive

industries activities, including reserve and resource disclosures? What

information is now (or no longer) required?
e Question 5 – are there any other significant changes in the extractive
industries that you want to make the Board aware of, including in other
jurisdictions if you are aware of any such changes?
Appendix II
ASX-listed companies examined for 2018 accounting practice according to AASB 6
Capitalisation Country of
Company name anking† Sub industry incorporation
1 AIC Resources Ltd IPO Diversified Metals & Mining Australia

2 American Pacific Borate & IPO Diversified Metals & Mining Australia
Lithium Ltd
3 AngloGold Ashanti Ltd Mid Gold South Africa
4 Atlas Iron Ltd Small Steel Australia
5 Argosy Minerals Ltd Small Diversified Metals & Mining Australia
6 Altura Mining Ltd Small Diversified Metals & Mining Australia
7 Alderan Resources Ltd IPO Diversified Metals & Mining Australia
8 Aurelia Metals Ltd Small Diversified Metals & Mining Australia
9 Alacer Gold Corp Small Gold Canada
10 Ardea Resources Ltd IPO Gold Australia
11 Aneka Tambang (Persero) Mid Diversified Metals & Mining Indonesia
Tbk (Pt)
12 Australis Oil and Gas Ltd Small Oil, Gas & Consumable Fuels Australia
13 Australis Oil & Gas Ltd IPO Oil, Gas & Consumable Fuels Australia
14 Australian Mines Ltd Small Diversified Metals & Mining Australia
15 AVZ Minerals Ltd Small Diversified Metals & Mining Australia
16 AWE Ltd Small Oil, Gas & Consumable Fuels Australia
17 Brockman Mining Ltd Small Copper Bermuda
18 Beadell Resoures Ltd Small Gold Australia
19 BHP Billiton Ltd Large Diversified Metals & Mining Australia
20 Berkeley Energia Ltd Small Oil, Gas & Consumable Fuels Australia
21 Beach Energy Ltd Mid Oil, Gas & Consumable Fuels Australia
22 Bathurst Resources Ltd Small Steel New Zealand
23 Base Resources Ltd Small Diversified Metals & Mining Australia
24 Byron Energy Ltd Small Oil, Gas & Consumable Fuels Australia
25 Champion Iron Ltd Small Steel Australia
26 CI Resources Ltd Small Diversified Metals & Mining Australia
27 Cobalt Blue Holdings Ltd IPO Diversified Metals & Mining Australia
28 Cooper Energy Ltd Small Oil, Gas & Consumable Fuels Australia
29 Dacian Gold Ltd Small Gold Australia
30 Doriemus Plc IPO Oil, Gas & Consumable Fuels UK
(continued)

Appendix II (continued)
1. (continued)
31 Energy Resources of Small Oil, Gas & Consumable Fuels Australia

Australia Ltd
32 Evolution Mining Ltd Mid Gold Australia
33 Far Ltd Small Oil, Gas & Consumable Fuels Australia
34 First Cobalt Corp IPO Diversified Metals & Mining Canada
35 Freedom Oil and Gas Ltd Small Oil, Gas & Consumable Fuels Australia
36 Freehill Mining Ltd IPO Steel Australia
37 Fortescue Metals Group Large Steel Australia
Ltd
38 Flinders Mines Ltd Small Steel Australia
39 Gascoyne Resources Ltd Small Gold Australia
40 Gold Road Resources Ltd Small Gold Australia
41 Grange Resources Ltd Small Steel Australia
42 Global Geoscience Ltd Small Diversified Metals & Mining Australia
43 Galaxy Resources Ltd Small Diversified Metals & Mining Australia
44 Hastings Technology Small Diversified Metals & Mining Australia
Metals Ltd
45 Independence Group NL Mid Diversified Metals & Mining Australia
46 Iluka Resources Ltd Mid Diversified Metals & Mining Australia
47 Karoon Gas Australia Ltd Small Oil, Gas & Consumable Fuels Australia
48 Kidman Resources Ltd Small Diversified Metals & Mining Australia
49 Kirkland Lake Gold Ltd Mid Gold Canada
50 Kirkland Lake Gold Ltd IPO Gold Canada
51 Kore Potash Plc IPO Diversified Metals & Mining UK
52 Lepidico Ltd Small Diversified Metals & Mining Australia
53 Lynas Corporation Ltd Small Diversified Metals & Mining Australia
54 Mount Gibson Iron Ltd Small Steel Australia
55 Mineral Resources Ltd Mid Diversified Metals & Mining Australia
56 Metals X Ltd Small Diversified Metals & Mining Australia
57 MMG Ltd Mid Diversified Metals & Mining Hong Kong
58 Metro Mining Ltd Small Oil, Gas & Consumable Fuels Australia
59 Magnis Resources Ltd Small Diversified Metals & Mining Australia
60 Mayur Resources Ltd IPO Diversified Metals & Mining Australia
61 Newcrest Mining Ltd Large Gold Australia
62 New Century Resources Small Diversified Metals & Mining Australia
Ltd
63 New Hope Corporation Ltd Small Oil, Gas & Consumable Fuels Australia
64 Neometals Ltd Small Diversified Metals & Mining Australia
65 Northern Star Resources Mid Gold Australia
Ltd
66 Nusantara Resources Ltd IPO Gold Australia
67 OceanaGold Corporation Mid Gold Canada
68 OM Holdings Ltd Small Diversified Metals & Mining Bermuda
69 Orocobre Ltd Small Diversified Metals & Mining Australia
70 Origin Energy Ltd Large Oil, Gas & Consumable Fuels Australia
71 Oil Search Ltd Large Oil, Gas & Consumable Fuels PNG
(continued)

Appendix II (continued)
1. (continued)
72 OZ Minerals Ltd Mid Copper Australia

73 Panoramic Resources Ltd Small Diversified Metals & Mining Australia
74 Pilbara Minerals Ltd Small Diversified Metals & Mining Australia
75 Perseus Mining Ltd Small Gold Australia
76 Rio Tinto Ltd Large Diversified Metals & Mining Australia
77 Ramelius Resources Ltd Small Gold Australia
78 Regis Resources Ltd Mid Gold Australia
79 Resolute Mining Ltd Small Gold Australia
80 South32 Ltd Large Diversified Metals & Mining Australia
81 Saracen Mineral Holdings Small Gold Australia
Ltd
82 St Barbara Ltd Small Gold Australia
83 Sino Gas & Energy Small Oil, Gas & Consumable Fuels Australia
Holdings Ltd
84 Sandfire Resources NL Small Copper Australia
85 Silver Lake Resources Ltd Small Gold Australia
86 Washington H. Soul Mid Oil, Gas & Consumable Fuels Australia
Pattinson & Co. Ltd
87 Santos Ltd Large Oil, Gas & Consumable Fuels Australia
88 Senex Energy Ltd Small Oil, Gas & Consumable Fuels Australia
89 Syrah Resources Ltd Small Diversified Metals & Mining Australia
90 Tawana Resources NL Small Steel Australia
91 Tribune Resources Ltd Small Gold Australia
92 Todd River Resources Ltd IPO Diversified Metals & Mining Australia
93 West African Resources Ltd Small Gold Australia
94 Whitehaven Coal Ltd Mid Oil, Gas & Consumable Fuels Australia
95 Woodside Petroleum Ltd Large Oil, Gas & Consumable Fuels Australia
96 Western Areas Ltd Small Diversified Metals & Mining Australia
97 Yancoal Australia Ltd Mid Oil, Gas & Consumable Fuels Australia
98 Zimplats Holdings Ltd Small Precious Metals & Minerals Guernsey
†
Capitalisation rankings: large-cap = $10 billion to >$100 billion; mid-cap = $2 billion to
$10 billion; small-cap = $100 million to $2 billion; IPO (source: https://www.commbank.
com.au/guidance/investing/what-are-large--mid-and-small-cap-shares--201606.html).

2836
Appendix III
Sub-sample of companies examined 2010–2017 for accounting practice according to AASB 6
Capitalisation Method Area Justification for selection in

Company name ranking† Sub industry used defined sub-sample
1 Australian Mines Ltd Small DMM AOI Legal rights to tenure Small DMM company with E&E
assets at 54% of its total asset base
2 BHP Billiton Ltd Large DMM AOI Unclear or not defined Large diversified global mining
company
3 Beach Energy Ltd Mid OGCF AOI Unclear or not defined Mid-sized OGCF company
4 Byron Energy Ltd Small OGCF AOI Legal rights to tenure Mid-sized OGCF company
5 Champion Iron Ltd Small Steel AOI Unclear or not defined Small steel company with E&E assets
at 40% of asset base
6 Cooper Energy Ltd Small OGCF AOI Geological area Small OGCF company with E&E
assets at 45% of asset base
7 Doriemus PLC IPO OGCF FC Legal rights to tenure UK-incorporated OGCF company;
uses FC method
8 Evolution Mining Ltd Mid Gold AOI Legal rights to tenure Mid-sized gold company
9 Far Ltd Small OGCF AOI Geological area Small OGCF company with E&E
assets at 71% of asset base
10 Fortescue Metals Group Ltd Large Steel AOI Legal rights to tenure Large steel company
C. Cortese et al./Accounting & Finance 62 (2022) 2807–2838
(continued)

Appendix III (continued)
1. (continued)

11 Flinders Mines Ltd Small Steel AOI Legal rights to tenure Small steel company with E&E assets
at 82% of asset base
12 Galaxy Resources Ltd Small DMM AOI Geological area Small DMM company with E&E
13 Hastings Technology Metals Small DMM AOI Legal rights to tenure Small DMM company with E&E
14 Iluka Resources Ltd Mid DMM AOI Legal rights to tenure Mid-sized DMM company
15 Karoon Gas Australia Ltd Small OGCF AOI Legal rights to tenure Small OGCF company with E&E
16 Kidman Resources Ltd Small DMM AOI Legal rights to tenure Small DMM company with E&E
17 Mayur Resources Ltd IPO DMM AOI Unclear or not defined IPO DMM company with E&E at
92% of its total asset base
18 Newcrest Mining Ltd Large Gold AOI Legal rights to tenure Large gold mining company
19 New Century Resources Ltd Small DMM AOI Unclear or not defined Small DMM company with E&E
20 New Hope Corporation Ltd Small OGCF AOI Legal rights to tenure Small OGCF company with E&E
21 Northern Star Resources Ltd Mid Gold AOI Legal rights to tenure Mid-sized gold mining company
22 Nusantara Resources Ltd IPO Gold AOI Unclear or not defined IPO gold company with E&E at 77%
of its total asset base
23 Origin Energy Ltd Large OGCF AOI Geological area Large OGCF company
24 Oil Search Ltd Large OGCF SE Unclear or not defined Large OGCF company
25 OZ Minerals Ltd Mid Copper E&R Unclear or not defined Mid-sized copper company; uses
expense and reinstate method

26 Panoramic Resources Ltd Small DMM AOI Unclear or not defined Small DMM company with E&E
27 Perseus Mining Ltd Small Gold AOI Legal rights to tenure
2837
(continued)
Appendix III (continued)
1. (continued)
2838

Small gold mining company with E&E

28 Rio Tinto Ltd Large DMM SE Unclear or not defined Large diversified global mining
company
29 Regis Resources Ltd Mid Gold AOI Legal rights to tenure Mid-sized gold mining company with
E&E assets at 22% of its total asset
base
30 South32 Ltd Large DMM AOI Unclear or not defined Large diversified global mining
company
31 Silver Lake Resources Ltd Small Gold AOI Geological area Small gold mining company with E&E
at 41% of total asset base
32 Santos Ltd Large OGCF AOI Legal rights to tenure Large OGCF company
33 Senex Energy Ltd Small OGCF AOI Legal rights to tenure Small OGCF company with E&E at
40% of total asset base
34 Whitehaven Coal Ltd Mid OGCF AOI Legal rights to tenure Mid-sized OCGF company
35 Woodside Petroleum Ltd Large OGCF AOI Geological area Large OGCF company
36 Western Areas Ltd Small DMM AOI Legal rights to tenure Small DMM company with E&E
DMM, Diversified Metals & Mining; OGCF, Oil, Gas, Consumable Fuels.
AOI, area-of-interest; SE, successful efforts; FC, full cost; E&R, expense and reinstate.
†
Capitalisation rankings: large-cap = $10 billion to >$100 billion; mid-cap = $2 billion to $10 billion; small-cap = $100 million to $2 billion;
IPO (source: https://www.commbank.com.au/guidance/investing/what-are-large--mid-and-small-cap-shares--201606.html).


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Accounting & Finance 62 (2022) 2807–2838

Is the extractive industries standard still ﬁt for purpose?

Corinne Cortese , Lee Moerman, Millicent Chang

The application of AASB 6 by extractive industries ﬁrms is examined to

Key words: AASB 6; Area of interest; Extractive industries

JEL classiﬁcation: M41

The extractive industries represent a signiﬁcant share of global capital, and

Please address correspondence to Millicent Chang via email: mchang@uow.edu.au

© 2021 Accounting and Finance Association of Australia and New Zealand.

the International Accounting Standards Committee, to consider regulating

© 2021 Accounting and Finance Association of Australia and New Zealand.

© 2021 Accounting and Finance Association of Australia and New Zealand.

2. Background: exploration and evaluation

The E&E activities of extractive operations occur in upstream phases of

2.1. Full cost method versus successful eﬀorts method

Over time, diﬀerent measurement and recognition methods have developed

© 2021 Accounting and Finance Association of Australia and New Zealand.

2.2. The area-of-interest method

The area-of-interest method is widely practised by Australian extractive

© 2021 Accounting and Finance Association of Australia and New Zealand.

© 2021 Accounting and Finance Association of Australia and New Zealand.

The project was conducted in three phases to determine current disclosure

© 2021 Accounting and Finance Association of Australia and New Zealand.

IFRS 6 and AASB 6 is applied in practice, and, by extension, explore

© 2021 Accounting and Finance Association of Australia and New Zealand.

5.1. Phase 1: Firm practices in 2018

Figure 1 shows the breakdown of the 2018 sample of 98 entities by sub-industry.3

© 2021 Accounting and Finance Association of Australia and New Zealand.

Copper Diversiﬁed Metals and Mining

ﬁrms choosing the area-of-interest method is 68 percent,4 and Constantatos et al.

© 2021 Accounting and Finance Association of Australia and New Zealand.

5.2. Phase 2: Company practices in Australia (2010–2017)

As noted, 36 companies from the above cohort were chosen as a sub-sample

© 2021 Accounting and Finance Association of Australia and New Zealand.

Area-of-interest Expense-then-reinstate Expense Full Cost Successful Eﬀorts

© 2021 Accounting and Finance Association of Australia and New Zealand.

Copper Diversiﬁed Metals and Mining

5.3. Phase 3: Interview and documentary evidence

Phase 3 incorporates both documentary and interview data we collected to

© 2021 Accounting and Finance Association of Australia and New Zealand.

Area of Interest Full Cost Not Deﬁned Successful Eﬀort Unclear

5.3.1. Accounting policy

© 2021 Accounting and Finance Association of Australia and New Zealand.

Geographical/geological aributes and area Legal rights to explore

. . . we would see it as an application-guidance issue . . . we have to borrow [from

© 2021 Accounting and Finance Association of Australia and New Zealand.

. . . as a general comment there is a lack of speciﬁc guidance . . . and it’s up to

© 2021 Accounting and Finance Association of Australia and New Zealand.

© 2021 Accounting and Finance Association of Australia and New Zealand.

The decision to capitalise or expense is not made in isolation. Other factors,

© 2021 Accounting and Finance Association of Australia and New Zealand.

involved in ensuring that ‘impairment considerations are appropriate’

5.3.2. Joint Ore Reserves Committee (JORC)

© 2021 Accounting and Finance Association of Australia and New Zealand.

5.3.3. Environmental sustainability

Several interviewees noted increasing environmental obligations as part of

© 2021 Accounting and Finance Association of Australia and New Zealand.

back to . . . green rolling hills with kangaroos . . . or an industrial park’

5.3.4. Financing, commodities and technological change

With the development and changes in the extractive industries, ﬁnancing

© 2021 Accounting and Finance Association of Australia and New Zealand.

have also aﬀected the nature of resources extracted such as access to

5.3.5. Risk and governance