Introduction

The AASB has approved AASB 6 Exploration for and Evaluation of Mineral Resources, the Australian equivalent to IFRS 6 Exploration for and Evaluation of Mineral Resources. This article contains details of the key aspects of this accounting standard. Visit the following web address for the complete newsletter:
http://www.kpmg.com.au/Portals/0/05FR-001AASB6Exploration.pdf

AASB 6 is effective for annual reporting periods beginning on or after January 1st 2005 as part of the first time adoption of Australian Equivalents to International Financial Reporting Standards (AIFRS), therefore early adoption will not be permitted.

The more comprehensive project for the extractive industries is still pending and KPMG believes that the IASB has achieved its objectives of making limited improvements to accounting practices for exploration and evaluation expenditures, without requiring major changes that may need to be reversed when the Board undertakes a comprehensive review of accounting practices used by entities engaged in the "exploration for and evaluation of mineral resources".

AASB 6 as finally issued is substantially different from the original exposure draft, and KPMG congratulates industry participants for their active participation in the debate around the introduction of this standard, and the AASB and IASB for listening to and acting on the needs of industry.

Key Points

• Australian specific guidance has been included, mandating the continued use of the 'area of interest' concept for Australian companies

• Entities recognising exploration and evaluation assets must perform impairment tests on those assets when facts and circumstances suggest that the carrying amount may be impaired
  Impairment of exploration and evaluation assets is assessed at a cash generating unit or group of cash generating units level provided this is no larger than an area of interest

• AASB 1022 Accounting for the Extractive Industries, the existing standard providing comprehensive guidance on accounting for extractive industries is withdrawn at the time AASB 6 comes into operation, so guidance on other aspects of the industry, such as development and construction costs, amortisation, inventory valuation and revenue recognition must be sought elsewhere in AIFRS

• AASB 6 is limited to exploration for and evaluation of mineral resources and will not be applicable by analogy to similar activities such as research

• IASB remains committed to a
  comprehensive project on the extractive industries which will replace this guidance in due course.