To specify the financial reporting for the exploration for and evaluation of mineral resources (E&E expenditures).
Allows entities to develop an accounting policy for recognizing E&E assets without strictly complying with the hierarchy in IAS 8 *Accounting Policies, Changes in Accounting Estimates and Errors* for this specific phase.
IFRS 6 is an interim standard, permitting some existing industry practices to continue, pending a more comprehensive review of accounting for extractive activities.
Applies To:
Exploration and evaluation (E&E) expenditures incurred by an entity in connection with the exploration for and evaluation of mineral resources (e.g., minerals, oil, natural gas, and similar non-regenerative resources).
Specifically, expenditures incurred:
After the entity has obtained the legal rights to explore in a specific area.
Before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.
Does Not Apply To:
Before obtaining the legal rights to explore. (Often treated as research or general business development costs).
After technical feasibility and commercial viability are demonstrable (i.e., development and production phases).
Once technical feasibility and commercial viability are established, expenditures are assessed under other relevant IFRSs, such as IAS 16 (PPE), IAS 38 (Intangibles), or IAS 36 (Impairment).
Permitted Policy Choices:
Entities may develop an accounting policy for the recognition and measurement of E&E assets. This policy is developed using the principles in IAS 8, but IFRS 6 provides a temporary exemption from applying paragraphs 11 and 12 of IAS 8 (the hierarchy for selecting policies when no specific IFRS applies).
The chosen accounting policies must result in information that is relevant to users' decision-making and reliable.
This means entities can continue using established industry practices for capitalizing E&E costs, provided they meet the general qualitative characteristics.
Common Recognition Approaches (Policy Choice):
Many entities choose to capitalize directly attributable E&E costs as E&E assets. These may include:
Acquisition of rights to explore.
Topographical, geological, geochemical, and geophysical studies.
Activities in relation to evaluating the technical feasibility and commercial viability of extracting a mineral resource (e.g., pre-feasibility studies).
Alternatively, some entities may choose to expense some or all E&E costs as incurred, though capitalization is more common for significant expenditures. The policy must be applied consistently.
E&E assets shall be measured at cost upon initial recognition.
Directly attributable costs incurred to acquire or create the E&E asset.
An allocation of directly related overheads supporting the E&E activities.
Costs must relate to specific exploration areas or projects.
Two Measurement Models Permitted (Policy Choice per class of E&E asset):
| Model | Description |
| Cost Model |
E&E assets are carried at cost less any accumulated impairment losses. (Depreciation/amortization typically does not apply until assets are ready for use in development/production phase). |
| Revaluation Model (IAS 16/38) |
NOT permitted for E&E assets under IFRS 6. Once technical feasibility and commercial viability are established, and the asset is reclassified (e.g., to PPE or Intangibles), then the revaluation model under IAS 16 or IAS 38 could be applied if criteria are met. |
The entity must apply its chosen policy consistently.
Key Rule:
E&E assets are subject to impairment testing under a modified application of IAS 36 *Impairment of Assets*. The modification relates to the level at which impairment is assessed.
Impairment Triggers:
IFRS 6 requires an entity to assess E&E assets for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount.
Indicators of Impairment (Specific to IFRS 6 - at least one needed):
The period for which the entity has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed.
Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned.
Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources, and the entity has decided to discontinue such activities in the specific area.
Sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the E&E asset is unlikely to be recovered in full from successful development or by sale.
Impairment Testing Unit:
Impairment is assessed for E&E assets at a level determined by the entity's accounting policy, which may be an area of interest, a geological unit, or a larger group of assets. This level may be larger than a cash-generating unit (CGU) or group of CGUs as defined in IAS 36 during the E&E phase.
Derecognize E&E assets (remove from statement of financial position) when:
The E&E activities in a specific area are abandoned.
The project fails to demonstrate technical feasibility or commercial viability, and no further E&E activities are planned.
Any resulting gain or loss on derecognition is recognized in profit or loss.
When an entity applies IFRS 6 for the first time:
It may retain its existing accounting policies for exploration and evaluation activities that were applied immediately before adopting IFRS 6, provided they comply with the general principles of IFRS 6 (e.g., impairment assessment).
It is not required to reclassify or restate prior E&E expenditures retrospectively unless necessary to comply with specific IFRS 6 requirements (e.g., impairment).
Typically Capitalized (if policy is to capitalize):
Acquisition of rights to explore (licenses, permits).
Topographical, geological, geochemical, and geophysical studies.
Trenching, bulk sampling, and similar activities.
Activities in relation to evaluating technical feasibility and commercial viability (e.g., metallurgical testing, pre-feasibility studies).
Directly attributable overheads supporting these activities.
Typically Expensed:
Costs incurred before obtaining the legal rights to explore a specific area.
General administrative overheads not directly related to specific E&E projects.
General geological studies or reconnaissance not targeted at specific mineral deposits.
Expenditures after technical feasibility and commercial viability are demonstrable (these fall under development/production, covered by other standards).
IFRS 6 is considered an interim standard, allowing entities some flexibility pending a more comprehensive project on extractive activities by the IASB.
Designed to avoid imposing excessive costs on entities, particularly smaller exploration companies, upon first-time adoption of IFRS or when developing policies for E&E.
While offering flexibility, the chosen accounting policy for E&E assets must still result in information that is relevant and reliable and be applied consistently.
The impairment assessment under IFRS 6 is crucial due to the inherent uncertainty of E&E activities.
