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ASC Approves Issuance of Standard on the Exploration for and Evaluation of Mineral Resources

The Accounting Standards Council (ASC) approved the adoption of International Financial Reporting Standard (IFRS) 6, Exploration for and Evaluation of Mineral Resources, issued by the international Accounting Standards Board (IASB) as Philippine Financial Reporting Standard (PFRS) 6. The Standard completes the initial phase of the IASB’s project on extractive activities and provides some initial guidance on accounting for some extractive activities without imposing significant costs
on those industries in advance of completing the larger project. Although the requirements are not mandatory until 2006, entities wishing to adopt the Standard early are encouraged to do so, and the Standard contains special transitional provisions for that purpose.

The Standard:
  • permits an entity to develop an accounting policy for exploration and evaluation assets without specifically considering the requirements of paragraphs 11 and 12 of PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. Thus, an entity adopting PFRS 6 may continue to use the accounting policies applied immediately before adopting the PFRS. This includes continuing to use recognition and measurement practices that are part of those accounting policies.
  • requires entities recognizing exploration and evaluation assets to perform an impairment test on those assets when facts and circumstances suggest that the carrying amount of the assets may exceed their recoverable amount.
  • varies the recognition of impairment from that in PAS 36, Impairment of Assets, but measures the impairment in accordance with that Standard once the impairment is identified.
  • requires disclosure of information that identifies and explains the amounts recognized in its financial statements arising from the exploration for and evaluation of mineral resources, including (a) its accounting policies for exploration and evaluation expenditures including the recognition of exploration and evaluation assets, and (b) the amounts of assets, liabilities, income and expense and operating and investing cash flows arising from the exploration for and evaluation of mineral resources.
PFRS 6 is effective for annual periods beginning on or after January 1, 2006. However, earlier application is encouraged, and if an entity adopts PFRS 6 before January 1, 2006, transitional reliefis available for comparative information presented in the entity’s first PFRS financial statements.

PFRS 6 has been forwarded to the Board of Accountancy and Professional Regulation Commission for approval.