The IASB recently tentatively decided “to remove, as part of its next volume of Annual Improvements to IFRS Accounting Standards, the temporary nature of the exemption in IFRS 6 from the application of paragraphs 11–12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.”

This provides an opportunity to revisit, perhaps for the last time, one of my favourite bits of IFRS-related trivia. For background, as we’ve noted before, IFRS 6 allows an entity some concessions in how it develops its accounting policies for recognizing and measuring exploration and evaluation assets – the standard labels this as a “temporary exemption” from aspects of IAS 8. The temporary exemption is now approaching its twentieth year of existence, and I’ve come to hope that it would always remain there (in the way, say, that one gets so accustomed to patches of scaffolding in one’s neighbourhood that the streets feel obscenely naked once they’re taken away).

An April 2010 Extractive Industries discussion paper had proposed clarifying the area by capitalizing all exploration and evaluation costs. It said: “The information gained from these activities generates a better understanding of whether a minerals or oil and gas deposit exists and, if so, the characteristics of that deposit and the prospects for economically extracting minerals or oil and gas from the deposit. Over time, exploration and evaluation will provide more information, thereby reducing geological and economic uncertainty. Information that is generated during development and production will reduce this uncertainty further. Thus, the information attribute of the legal rights asset will continue to be modified.” However, the staff summary of responses to the discussion paper noted: “a significant majority disagreed with the project team’s view that the subsequent exploration and evaluation activities undertaken would always represent an enhancement of the property (at least at the time that information is obtained).” Many of the respondents suggested the analysis “was inconsistent with the asset recognition criteria in the Framework because the information obtained may not have any probable future economic benefit.” Overall, there was a widespread view that the discussion paper “does not adequately make the case for changing existing accounting policies that are being consistently applied and that are well understood by user of financial statements.”

(Other aspects of the 2010 discussion paper, such as a proposal to disclose information on proved reserves and on proved and probable reserves within the notes to the financial statements, went down even less well, with many arguing among other things that “auditing reserve disclosures would impose a significant cost, be time intensive and would divert geological and engineering expertise away from business functions and towards compliance functions.”)

So, all this time later, the IASB tentatively decided:

1. not to develop requirements or guidance to disclose information to help users of financial statements:
   1. understand how an entity accounts for exploration and evaluation expenditure;
   2. compare entities with varying accounting policies for exploration and evaluation expenditure; and
   3. understand the risks and uncertainties of an entity’s exploration and evaluation activities; and
2. not to pursue other suggestions to improve disclosure requirements related to exploration and evaluation expenditure and activities.

Put another way, it took a decision to leave preparers with the same accounting policy choice they’ve had for all these years, confirming “that the work done in publishing the Discussion Paper Extractive Activities in April 2010 and in (the current) Extractive Activities research project completes the comprehensive review of the accounting for extractive activities envisaged by the IASB when issuing IFRS 6.” The underlying staff paper went on: “We think if the word ‘temporary’ remains in the heading in IFRS 6 this might leave stakeholders with an expectation that the IASB plans to perform more work on the accounting for extractive activities and reconsider the necessity for the exemption in the future—one preparer in the outreach we conducted on the suggestions to improve the information an entity discloses about its E&E expenditure and activities said that it would make sense to remove the word ‘temporary’ to provide some certainty.” The point may seem somewhat academic, as preparers and others are clearly accustomed to applying IFRS 6 in its current form, and to using the financial statements that result from it, regardless of the ”temporary” reference (the paper also acknowledged in passing an opposing concern, that “removing the temporary nature of the exemption could be perceived by stakeholders as the IASB endorsing the diversity in accounting policies for E&E expenditure developed using the exemption.”)

All of that said, one can of course understand the IASB’s decision to remove the reference. Sometimes, you know, a feeling of certainty about the permanence of something proves with hindsight to have been an omen of its pending demise. But probably not here! And as indicated, the change will likely be made as part of the next batch of “annual improvements”. So even if there were nothing else to improve, that already looks more interesting than the last such round of fixes!

The opinions expressed are solely those of the author.