Before a mining or oil & gas company generates revenue, it may spend substantial amounts exploring whether economically recoverable resources actually exist. How are those costs accounted for?
IFRS 6 addresses expenditures related to the exploration for and evaluation of mineral resources.
It provides specific guidance that allows entities to develop accounting policies for qualifying exploration and evaluation expenditures within the framework of the standard. Examples may include:
• geological studies;
• exploratory drilling;
• sampling;
• activities evaluating the technical feasibility and commercial viability of extraction.
Exploration and evaluation assets are also subject to specific impairment considerations.
In short: IFRS 6 addresses a highly uncertain stage — spending money to determine whether commercially viable mineral resources exist.
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