Towards a solution to the variety in accounting practices of extractive firms under IFRS

Australian Accounting Review (forthcoming)

34 Pages Posted: 8 Jul 2020 Last revised: 10 Aug 2021

See all articles by Christopher William Nobes

Christopher William Nobes

University of London - Royal Holloway College

Christian Stadler

University of London - Royal Holloway College

Date Written: July 3, 2021

Abstract

Accounting for exploration and evaluation (E&E) costs is one of the last major issues to remain largely unregulated by International Financial Reporting Standards (IFRS), even though extractive firms are an important part of several big stock markets. Under a temporary permissive standard (IFRS 6), which has been in place since 2004, firms use a wide range of accounting policies for E&E costs, thus undermining comparability. We review the IFRS annual reports of a large number of firms, looking for different policies. We identify many distinguishable methods of accounting. Along with this, we discover that disclosures are often confusing, partly because of the lack of definitions in IFRS 6. To aid insight into this complexity, we prepare a classification of these methods and give real examples of each. We then assess the methods in the context of IFRS 6 and other relevant parts of IFRS. We find that nearly all the methods comply with IFRS. This leads us to a proposal for narrowing the variety of practice by withdrawing IFRS 6, and putting E&E costs within the scope of IAS 38 Intangible Assets. As part of this, IAS 38 could be further revised to extend the scope of capitalisation of other development costs, thereby addressing one of the criticisms of current reporting practice and bringing IAS 38 more into line with the latest version of the Conceptual Framework.

Keywords: extractive industry accounting; IFRS 6; oil & gas accounting; mining accounting; international accounting policy choice; intangible assets

JEL Classification: M4

Suggested Citation

Nobes, Christopher William and Stadler, Christian, Towards a solution to the variety in accounting practices of extractive firms under IFRS (July 3, 2021). Australian Accounting Review (forthcoming), Available at SSRN: https://ssrn.com/abstract=3624733 or http://dx.doi.org/10.2139/ssrn.3624733

Christopher William Nobes (Contact Author)

University of London - Royal Holloway College ( email )

School of Management
Royal Holloway
Egham, TW20 0EX
United Kingdom

Christian Stadler

University of London - Royal Holloway College ( email )

Egham
Surrey, Egham TW20 0EX
United Kingdom

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