The International Accounting Standards Board (IASB) has commissioned a research project on extractive activities, to take a “fresh look” at how mining companies report and account for mineral, oil and gas reserves and resources.

The project is in its first stage, and a discussion paper will be released in the first quarter of 2009.

Researchers in Australia, Canada, Norway, and South Africa are looking at the questions of when an asset should be recognised on the balance sheet; how reserves and resources recognised on the balance sheet should be measured; what reserves or resources information should be disclosed in the financial report; and how reserves and resources should be defined.

Companies, investors, and other users of financial statements do not particularly want mineral assets reflected on the balance sheet at historical cost, because this is viewed as irrelevant, nor do they want these assets at fair value, or some kind of simplified fair value.

“They just want disclosure of what the cash flow in the future will be, and information around the reserves resources. That’s very tricky to fit that in to the existing IASB framework on other accounting,” said KPMG Energy & Natural resources audit director Riaan Davel.

The International Financial Reporting Standards 6 (IFRS 6) explanation for, and evaluation of mineral resources is viewed as an interim solution, and the existing IFRS did not adequately address the problems of reporting on and accounting for resources, he said.

The discussion paper in 2009 would be the first step in the IASB’s due process. The paper would be open for comment for six months, “so we really encourage industry then to get involved, read it, comment and then help the IASB to ultimately shape that answer,” said Davel.

If the IASB took the research project on as an active project, comments from industry and financial statement preparers, analysts, auditors, and security regulators around the world would be analysed.

The IASB would then draft, based on the discussion paper and exposure draft, what this financial reporting standard will look like. That document will then go out for comment to industry for the last time, and then, based on those comments, the IASB would issue a standard to account for extractive activities.

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