IFRS 6: Exploration for and evaluation of mineral resources

IFRS Guide > IFRS 6

The International Accounting Standards Board (IASB) released International Financial Reporting Standard 6 (IFRS 6) to address the topic of the exploration for and evaluation of mineral resources. While this standard is specific to companies taking part in these types of activities, and few industries are involved in this, this topic is one that is important enough for the IASB to set a standard for because of the many ways in which companies could potentially account for this.

Ultimately this standard defines how companies, for example a mineral mining company, should account for the costs associated with exploring for a mineral resource to mine. Included in this is also the accounting methodologies for the subsequent costs incurred to evaluate whether it is a viable location to mine. Mining companies dedicate a substantial amount of money to these activities which are often times not realizable expenditures for investors because the mine has been evaluated as not profitable to explore.

After a profitable mine has been identified in which the company intends to extract minerals from, it is recorded on the balance sheet to reflect what it believes is possible to be harvested from said resource. Once the company has capitalized the mine, it must perform impairment tests when circumstances indicate that the amount recoverable is less than the carrying amount.

IFRS are principles based standards, rather than strict rules based standards that govern international accounting. IFRS standards differ from IAS standards in that they began being introduced in 2001, whereas IAS were produced prior to this date by the IASC, or the International Accounting Standards Committee. Therefore when an IFRS standard and an IAS standard conflict, the IFRS is generally more authoritative due to being more recent.

Check out more high level explanations of the IASB IFRS in our Guide to IFRS International Financial Reporting Standards!

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