Chapter 2: Recognition of exploration and evaluation assets

IFRS 6 requires an entity to apply IAS 8 when developing its accounting policies for the recognition of exploration and evaluation assets. Accordingly, judgement should be applied in developing and applying an accounting policy that results in information that is:

• relevant to the economic decision-making needs of users; and
• reliable, in that the financial statements:
  • represent faithfully the financial position, financial performance and cash flows of the entity;
  • reflect the economic substance of the transactions, other events and conditions, and not merely the legal form;
  • are neutral (i.e., free from bias);
  • are prudent; and
  • are complete in all material aspects.

Subject to the requirements in IFRS 6 described, an entity is exempted from applying IAS 8 when determining its policies for the recognition and measurement of exploration and evaluation assets.

As discussed, IAS 8 provide guidance for developing and applying an accounting policy when there is no IFRS that specifically applies to a transaction. When the conditions specified in IFRS 6 are met, an entity is not required to refer to or consider:

• the requirements in IFRS Standards dealing with similar and related issues;
• the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Conceptual Framework; or
• the most recent pronouncements of other standard-setting bodies that use a similar Conceptual Framework to develop accounting standards, other accounting literature and accepted industry practices.

In requiring the application of IAS 8:10 but not IAS 8:11 and 12 (except in limited circumstances), the Board made a conscious decision to permit entities to continue to apply the accounting practices they followed before adopting IFRS 6. The result is that entities reporting under IFRS Standards that are domiciled in different jurisdictions, and sometimes even within the same jurisdiction, do not necessarily apply a consistent method of accounting for exploration and evaluation expenditures. It is also possible that some accounting policies adopted in accordance with IFRS 6 will lead to the recognition of amounts as assets or expenses that would not meet the definition of an asset or an expense as set out in the Conceptual Framework.

As explained, the Board considered these consequences at length but decided to allow temporary relief to minimize disruption to the preparers and users of financial statements information for entities adopting IFRS Standards for the first time.