The Capitalisation of Intangibles Debate: Accounting for Exploration and Evaluation Expenditure in Extractive Activities

Constantatos, Anna-Fani; Dionysiou, Dionysia; Slack, Richard; Tsalavoutas, Ioannis; Tsoligkas, Fanis

doi:10.36399/gla.pubs.234937

Cited by 3 publications

(10 citation statements)

References 21 publications

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“…These figures are comparable to Nobes and Stadler (2021) where the proportion of Australian firms choosing the area‐of‐interest method is 68 percent, and Constantatos et al . (2020), who reported 86 percent of Australian firms in their sample reporting according to the area‐of‐interest method. One firm, Kirkland Lake Gold Ltd, a Canadian company also listed on the Toronto Stock Exchange, uses the full cost method.…”

Section: Discussionmentioning

confidence: 99%

“…This finding is consistent with Constantatos et al . (2020) who reported the general tendency of companies in their sample to capitalise E&E expenditure. The breakdown within the sector is consistent with the findings of Nobes and Stadler (2021) and IASB (2020) where the materials sector is reportedly more conservative in accounting treatment than the energy sector.…”

Section: Discussionmentioning

confidence: 99%

“…Since costs at this pre‐production stage are difficult to define and thus measure, categorise and recognise in a standardised form, long‐standing and controversial issues exist for standard‐setters (Van Riper, 1994). Different accounting treatments are used to deal with E&E costs – Stadler and Nobes (2020) identify nine methods of accounting for these costs (see also Constantatos et al ., 2020); however, these methods fall within the spectrum of two established ends known as successful efforts accounting and full costs accounting, which we review below, in additional to the hybrid area‐of‐interest method that is used in Australia.…”

Section: Background: Exploration and Evaluationmentioning

confidence: 99%

“…The area‐of‐interest method is widely practised by Australian extractive industries entities, a consequence of the requirements of AASB 6, which must be used by all entities listed on the ASX (Constantatos et al ., 2020; IASB, 2020). AASB 6 includes Australian‐specific paragraphs that also allow the treatment of E&E expenditures in the context of areas of interest (AASB, 2015, p. 6, emphasis in original).

An area‐of‐interest refers to an individual geological area whereby the presence of a mineral deposit or an oil or natural gas field is considered favourable or has been proved to exist.…”

Section: Background: Exploration and Evaluationmentioning

confidence: 99%

“…Australia’s equivalent of IFRS 6, AASB 6 Exploration for and Evaluation of Mineral Resources , was issued in 2015 and is largely consistent with IFRS 6, except for the inclusion of additional Australia‐specific paragraphs relating to the scope, measurement and recognition of E&E expenditures (AASB, 2015). IFRS 6 currently grants reporting entities the capacity to develop their own accounting policies for the treatment and recognition of E&E expenditures, meaning that firms have been permitted to adopt their treatment of choice, typically the full cost or successful efforts method or a variation thereof (IASC Foundation, 2004; Constantatos et al ., 2020; IASB, 2020; Stadler and Nobes, 2020). The Australian adaptation of IFRS 6 narrows treatment by specifying the use of the area‐of‐interest method for Australian reporting entities.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Is the extractive industries standard still fit for purpose?

Cortese

Moerman

Chang

2021

Accounting & Finance

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The application of AASB 6 by extractive industries firms is examined to determine the issues and challenges faced by financial statement preparers when applying the standard. The results show that while the area‐of‐interest method is extensively chosen to account for exploration and evaluation costs, there was lack of consistency in its description. Interviews revealed that while preparers reported flexibility in the application of AASB 6, they sought more guidance to reduce reliance on external publications. The findings show that while preparers supported the retention of AASB 6, more guidance on its application was needed, especially in its interaction with new accounting standards and regulations.

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Section: Discussionmentioning

confidence: 99%

Section: Discussionmentioning

confidence: 99%

Section: Background: Exploration and Evaluationmentioning

confidence: 99%

An area‐of‐interest refers to an individual geological area whereby the presence of a mineral deposit or an oil or natural gas field is considered favourable or has been proved to exist.…”

Section: Background: Exploration and Evaluationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Is the extractive industries standard still fit for purpose?

Cortese

Moerman

Chang

2021

Accounting & Finance

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Extending the boundaries of financial reporting in the extractive industries: Insights from bibliometric analysis

Centorrino,

Naciti,

Rupo

2024

Corp Soc Responsibility Env

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Financial reporting in extractive industries (EIs) is a crucial function that warrants further attention in the literature. Previous studies have identified several issues related to financial reporting quality, its impact on stock prices, and the relationship between financial reporting and corporate governance. However, significant gaps remain in understanding the impact of the extractive industry's unique characteristics and the role of regulators in enhancing financial reporting practices. This study aims to illuminate the research trajectory affecting extractive firms by describing the state‐of‐the‐art regarding related accounting standards through a mapping of currently accessible studies. To achieve this, we applied a bibliometric analysis methodology. Bibliometric techniques provide a quantitative approach for objectively assessing literature, offering a comprehensive overview of influential authors, journals, themes, and countries within a specific research field. This approach also facilitates the identification of research trends and the prediction of future developments. The study highlights the growing demand for sustainability reports as the primary formalized means for companies to disclose their sustainable development efforts. Research on sustainability reporting in the mining sector underscores the importance of integrated sustainability reporting, with a focus on understanding the evolution and advancement of reporting methodologies across all dimensions of corporate social responsibility.

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Exploring the Accounting Treatment of Exploration and Evaluation Activities in the Extraction Industry in South Africa and Australia

Van der Walt,

Dlamini,

Schutte

2023

IJEFI

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The study examines the accounting treatment of exploration and evaluation assets in the extraction industry in South Africa and Australia. This study adopted a qualitative research approach and purposive sampling techniques. Data was collected from 60 entities in the extraction industry that are listed on the Johannesburg Stock Exchange (JSE) and the Australian Securities Exchange (ASX). The study found that South African entities classify exploration and evaluation assets as tangible or intangible assets using International Financial Reporting Standard (IFRS) 6. The study also observed that Australian entities classify exploration and evaluation assets as a separate class of assets using the Australian Accounting Standard Board (AASB) 6. South African entities depreciated or amortized exploration and evaluation assets, while Australian entities did not. The study concluded that even though there is high adoption of IFRS 6 or AASB 6, comparability is compromised in the extraction industry. The study recommended that IFRS 6 not offer a choice between IAS 16 or IAS 38 for the classification of exploration and evaluation assets to improve comparability and aid effective decision-making.

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The Capitalisation of Intangibles Debate: Accounting for Exploration and Evaluation Expenditure in Extractive Activities

Abstract: The capitalisation of intangibles debate: Accounting for exploration and evaluation expenditure in extractive activities.', Project Report. Association of Chartered Certied Accountants.

Cited by 3 publications

References 21 publications

Is the extractive industries standard still fit for purpose?

Is the extractive industries standard still fit for purpose?

Extending the boundaries of financial reporting in the extractive industries: Insights from bibliometric analysis

Exploring the Accounting Treatment of Exploration and Evaluation Activities in the Extraction Industry in South Africa and Australia

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