5 August 2010
Sir David Tweedie
International Accounting Standards Board
30 Cannon Street
London EC 4M 6XH
Dear Sir David
Discussion Paper ' Extractive Activities
The Group of 100 (G100) is an organization of chief financial officers from Australia's largest business enterprises with the purpose of advancing Australia's financial competitiveness. We are pleased to provide comments on the Discussion Paper ' Extractive Activities.
The G100 considers that the recognition and measurement requirements in IFRSs should be applicable to entities engaged in extractive activities rather than developing a separate set of requirements for these entities. We believe that the unique characteristics relating to extractive activities are better addressed by the preparation of separate disclosure requirements relating to these activities.
Scope of extractive activities: The
project team proposes that the scope of an extractive activities IFRS
should include only upstream activities for minerals, oil and natural
gas. Do you agree? Are there other similar activities that should also
fall within the scope of an IFRS for extractive activities? If so,
please explain what other activities should be included within its scope
The G100 supports the proposed scope of the project to
deal with upstream activities. We believe that the application of
disclosure principles to entities engaged in extractive (upstream)
activities is appropriate.
Approach: The project team proposes that there
should be a single accounting and disclosure model that applies to extractive
activities in both the minerals industry and the oil and gas industry. Do you
agree? If not, what requirements should be different for each industry and what
is your justification for differentiating between the two industries?
G100 supports the objective of preparing a single disclosure model for entities
engaged in extractive activities. However, as indicated above, the G100 does not
support the development of separate requirements relating to recognition and
measurement. If there are difficulties in applying the principles in IFRSs and
the conceptual framework to extractive activities then it is appropriate to
include further guidance in those Standards or by preparing Interpretations
which address specific issues such as is occurring in the IFRIC project on
accounting for production stripping costs in the mining industry.
Definitions of minerals and oil and gas reserves and
resources: The project team proposes that the mineral reserve and
resource definitions established by the Committee for Mineral Reserves
International Reporting Standards and the oil and gas reserve and resource
definitions established by the Society of Petroleum Engineers (in conjunction
with other industry bodies) should be used in an IFRS for extractive activities.
Do you agree? If not, how should minerals or oil and gas reserves and resources
be defined for an IFRS?
The G100 agrees with the proposal to rely on
widely used and recognized definitions used in the respective industries that
reflect the technical knowledge and expertise not directly available to an
accounting standard-setter. A benefit of using these definitions is that the
measures used internally by entities will be those used for financial reporting
purposes which will contribute towards ensuring greater clarity,
understandability and consistency in the information provided to users. However,
the reference to these definitions should be such that it refers to the
definitions as amended by these bodies from time to time.
Minerals or oil and gas asset recognition model '
recognition: It is proposed that legal rights, such as exploration rights
or extraction rights should form the basis of an asset referred to as a
'minerals or oil and gas property'. The property is recognized when the legal
rights are acquired. Information obtained from subsequent exploration and
evaluation activities and development works undertaken to access the minerals or
oil and gas deposit would each be treated as enhancements of the legal rights.
Do you agree with this analysis for the recognition of a minerals or oil and gas
property? If not, what assets should be recognized and when should they be
The G100 does not support the proposed approach.
Rather, we believe that the current recognition and measurement requirements in
existing standards, for example, IAS 13 'Research and Development Costs'; IAS 16
'Property, Plant and Equipment'; IAS 36 'Impairment of Assets' and IAS 38
'Intangible Assets' should be applied and that application issues be addressed
by providing more guidance or issuing an interpretation.
Minerals or oil and gas asset recognition model
' unit of account selection: The project team's view is that the
components approach in IAS 16 Property, Plant and Equipment would apply
to determine the items that should be accounted for as a single asset.
Do you agree with this being the basis for selecting the unit of account
of a minerals or oil and gas property? If not, what should be the unit
of account and why?
The G100 considers that the unit of account should be determined flexibly so as to permit the different facts and circumstances confronting the entity to be taken into account. In this regard we consider that the area of interest approach based on the previous Australian Standard AASB 1022 'Accounting for the Extractive Industries' is an appropriate approach. Under this approach an 'area of interest' means an individual geological area which is considered to constitute a favourable environment for the presence of a mineral deposit or an oil or natural gas field, or has been proved to contain such a deposit or field.
In most cases the area of interest will comprise a single mine or deposit or a separate oil or gas field. It is common for an area to contract in size progressively, as exploration and evaluation lead towards the identification of a mineral deposit or an oil or natural gas field, which may prove to contain economically recoverable reserves.
Under such an approach the unit of account is responsive to the
ongoing facts and circumstances.
Minerals or oil and gas asset measurement model:
The project team's view is that minerals or oil and gas should be measured at
historical cost but that detailed disclosure about the entity's minerals or oil
and gas properties should be provided to enhance the relevance of the financial
In your view, what measurement basis should be used for minerals and oil and gas properties and why? This could include measurement bases that were not considered in the discussion paper. In your response, please explain how this measurement basis would satisfy the qualitative characteristics of useful financial information.
The G100 supports the application of the current historical cost based
approach to measurement. The G100 strongly opposes measurement on a fair value
basis which introduces subjectivity and volatility to the measurement process
and imposes costs on preparers which are not justified in the face of the
acknowledged lack of demand by users.
Testing exploration properties for impairment: The project team's view is
that exploration properties should not be tested for impairment in accordance
with IAS 36 Impairment of Assets and recommends that an exploration property
should be written down to its recoverable amount in those cases where management
has enough information to make this determination. Because this information is
not likely to be available for most exploration properties while exploration and
evaluation activities are continuing, the project team recommends that, for
those exploration properties, management should:
Do you agree with the project team's recommendations on impairment? In not, what type of impairment test do you think should apply to exploration properties?
The G100 believes that entities engaged in extractive activities should apply
the requirements of IAS 36 to all activities when assessing whether or not
assets are impaired. In this regard the approach would be similar to that
applied by entities engaged in research and development activities.
Disclosure Objectives: The project team proposes that the disclosure
objectives for extractive activities are to enable users of financial reports to
Do you agree with those objectives for disclosure? If not, what should be the disclosure objectives for an IFRS for extractive activities and why?
The G100 believes that relevant disclosures about the activities of entities engaged in extractive activities are important for users to gain an understanding of their risks, uncertainties and performance. It is for this reason that the G100 believes that if there is to be a separate standard relating to these activities it should focus on developing disclosure principles and their application to activities which are consuming finite resources. In this regard the disclosure objectives are appropriate.
However, we believe that requirements in IFRSs should fall within the scope of
the audit opinion unless they are part of a guidance document such as that
proposed in respect of management commentary.
Types of disclosure that would meet the disclosure objectives:
project team proposes that the types of information that should be disclosed
Would disclosure of this information be relevant and sufficient for users? Are there any other types of information that should be disclosed? Should this information be required to be disclosed as part of a complete set of financial statements?
The G100 considers that the proposed disclosures are excessive and require a level of detail and volume that is not justified in comparison with other activities.
Reserve Disclosures: The G100 supports reserve disclosures based on generally accepted and widely used industry definitions of proven and probable reserves such as those discussed in Q3. It is important that the disclosures of reserve quantities clarify the risks and uncertainties involved and show the key assumptions on which they are based. The reporting of reserves and movements during the reporting period is one instance where we consider that a reconciliation of opening and closing amounts provides useful information to users.
Value Disclosures: The G100 believes that the disclosure of current/fair value information about the reserves will result in the incurrence of significant costs and effort with little benefit to users.
The amounts reported are, at best, estimates based on a range of assumptions and
are subject to significant uncertainties that impair the relevance and
reliability of the information. We believe that it is more appropriate for users
to use the reserve quantity information to make their own estimates if that
information is important to decision making.
Publish what you pay disclosure proposals: In your view, is a requirement to
disclose, in the notes to the financial statements, the payments made by an
entity to governments on a country-by-country basis justifiable on cost-benefit
grounds? In your response, please identify the benefits and the costs associated
with the disclosure of payments to governments on a country-by-country basis.
No. The G100 believes that entities would incur significant costs to identify and measure such costs and incur practical issues in ensuring comparability of information reported in respect of different jurisdictions. We remain to be convinced that such disclosures would be consistent with the disclosure objective and provide relevant information for decision making by equity holders and capital market participants.
Group of 100 Inc