Oil and mining resources face IASB exploration

The IASB is set to undertake a rigorous review of accounting practices used in the oil and mining industries after issuing a pioneering standard for the exploration of mineral resources.

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IFRS6 will be mandatory from the start of 2006, and addresses the lack of authoritative guidance for the exploration and evaluation of mineral resources, which until now have been accounted for in a disparate, disjointed manner from country to country.

But in the new standard the IASB has made it clear that a comprehensive review of the accounting practices in the sector is on the cards and could see oil and mining companies faced with stricter standards and higher levels of disclosure. Oil giant Shell (pictured) and other major resources companies will be affected.

‘IFRS6 is just tidy up and not the full review that the IASB is planning,’ said Jeff Harris, corporate partner at PKF. ‘There is no timetable for the review, so we don’t know when it will begin or if more onerous reporting requirements will be introduced.’

Richard Wilson, global head of energy at Ernst & Young, said the complete IASB review was unlikely to take place before 2007. ‘The IASB is not geared up to do the review much before 2007/2008,’ Wilson said.

‘The review will go beyond exploration and evaluation and move on to the production side. It will address the lack of a comprehensive standard for all activities in the industry,’ he added.

As IFRS6 stands currently, oil and mining companies are facing the possibility of making larger write-offs in their accounts than normal.

‘Unlike the general thrust of other standards, where the onus is on the company to prove that an asset exists, IFRS6 allows an exploration site to be capitalised if a company is spending money on it,’ Harris said. ‘If things turn out this way, write-offs will have to be made.’

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