IFRS 6
Active
Exploration for and Evaluation of Mineral Resources
Specifies financial reporting for the exploration for and evaluation of mineral resources.
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Conceptual Framework Linkage
Why IFRS 6 is deliberately an "interim" standard
Exploration and evaluation (E&E) expenditure sits in a uniquely uncertain position under the Conceptual Framework – at the point of spending, it is often genuinely UNCLEAR whether a future economic benefit (a commercially viable mineral deposit) will ever materialise. Rather than resolving this uncertainty with a single, fully worked-out set of rules, the IASB deliberately issued IFRS 6 as a NARROW, transitional standard permitting entities to LARGELY CONTINUE their existing accounting policies.
HOW IFRS 6 MAPS TO THE FRAMEWORK
Recognition uncertainty – E&E expenditure often cannot be reliably assessed against the Framework's normal asset recognition criteria (probable future benefit) until FAR more work/data is available Cost constraint on standard-setting – the IASB explicitly chose NOT to develop a comprehensive extractive industries standard immediately, allowing existing diverse national practices to continue while research continued A modified impairment trigger – recognising that E&E assets' value is unusually hard to assess, IFRS 6 provides SPECIFIC impairment indicators tailored to the extractive industry, rather than relying solely on IAS 36's general indicators
IFRS 6 is UNIQUE among IFRS Standards in explicitly PRESERVING existing accounting policy diversity rather than harmonising it – a deliberate, narrow, "first step" standard the IASB always intended to revisit with more comprehensive extractive industry guidance.
Measurement principles applied by IFRS 6
IFRS 6 sets a MINIMUM initial measurement requirement (cost), then largely defers to the entity's own existing accounting policy for everything else.
StageIFRS 6's treatment
Initial recognitionAt COST – a firm requirement
Subsequent measurementEntity develops its OWN accounting policy – cost model or revaluation model, applied consistently
Qualitative characteristics in action: allowing continued POLICY DIVERSITY for subsequent measurement trades comparability for PRACTICAL cost/reliability constraints – an explicit, deliberate compromise unique to this standard.
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Scope & Applicability
What IFRS 6 covers
IFRS 6 applies to EXPLORATION AND EVALUATION EXPENDITURES an entity incurs – specifying the financial reporting for the exploration for, and evaluation of, mineral resources.
WHAT IS NOT COVERED
Expenditures incurred BEFORE the exploration for and evaluation of mineral resources (e.g. before the entity has obtained the LEGAL RIGHTS to explore a specific area) – accounted for under the Conceptual Framework and other applicable Standards Expenditures incurred AFTER the technical feasibility and commercial viability of extracting a mineral resource are DEMONSTRABLE – fall outside IFRS 6's scope and are accounted for under normal Standards (e.g. IAS 16, IAS 38)
IFRS 6's scope is DELIBERATELY narrow – a specific "window" of activity between obtaining exploration rights and demonstrating technical feasibility/commercial viability.
Key definitions you must know
Exploration and evaluation expenditures
Expenditures incurred in connection with the exploration for and evaluation of mineral resources, BEFORE the technical feasibility and commercial viability of extracting the mineral resource are demonstrable.
Exploration and evaluation assets
Exploration and evaluation expenditures recognised as assets in accordance with an entity's own accounting policy.
Mineral resources
Minerals, oil, natural gas, and similar non-regenerative resources, AFTER the entity has obtained legal rights to explore a specific area.
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Recognition – A Deliberately Permissive Standard
The unique freedom IFRS 6 grants – with worked example
IFRS 6 permits an entity to DEVELOP an accounting policy for E&E assets WITHOUT specifically considering the requirements of paragraphs 11 and 12 of IAS 8 (which would otherwise require reference to the Conceptual Framework and similar IFRS requirements) – a deliberate, EXPLICIT carve-out from IAS 8's normal policy-selection hierarchy.
Example 1: Continuing a "successful efforts" policy under IFRS 6
An oil and gas entity previously used a "successful efforts" method under its local GAAP, capitalising only exploration costs for wells that turn out to be commercially successful, expensing costs for "dry holes" immediately. On IFRS adoption, the entity wishes to CONTINUE this same policy.
IFRS 6 EXPLICITLY permits this – the entity can continue applying its EXISTING accounting policy for E&E assets, without needing to justify it against the Conceptual Framework or other IFRS Standards in the way IAS 8 would normally require.
This IAS 8 carve-out is UNIQUE to IFRS 6 – no other IFRS Standard grants this degree of continued flexibility, reflecting the IASB's deliberate decision to defer full harmonisation of extractive industry accounting to a later, more comprehensive project.
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Measurement – Initial Cost & Accounting Policy Choice
Initial measurement at cost
E&E assets are measured at COST at initial recognition – comprising costs of acquiring exploration rights, topographical/geological/geochemical/geophysical studies, exploratory drilling, trenching, sampling, and activities related to evaluating technical feasibility/commercial viability
An entity's accounting policy determines which of these expenditures are RECOGNISED as E&E assets, and which are expensed – provided the resulting allocation is REASONABLE, given the circumstances.
Subsequent measurement – cost or revaluation model
After recognition, an entity applies EITHER the COST MODEL or the REVALUATION MODEL to E&E assets – consistent with IAS 16's or IAS 38's own measurement models, depending on whether the E&E asset is classified as tangible or intangible.
The choice of cost vs revaluation model, once made, is a genuine accounting policy applied consistently – the standard's flexibility applies most significantly to WHAT gets capitalised in the first place.
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Reclassification of E&E Assets
Exiting IFRS 6's scope once feasibility is demonstrated
An E&E asset shall NO LONGER be classified as such once the TECHNICAL FEASIBILITY and COMMERCIAL VIABILITY of extracting the mineral resource are DEMONSTRABLE. E&E assets shall be ASSESSED FOR IMPAIRMENT (Section 6) BEFORE reclassification, and any impairment loss recognised BEFORE the reclassified asset moves into its new category, governed by the normal applicable Standard.
This is a CRITICAL sequencing rule – the mandatory pre-reclassification impairment test ensures E&E assets are not carried forward at an inflated amount into the development-stage accounting regime.
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Impairment – A Modified Trigger (with worked example)
IFRS 6's own indicators, replacing some of IAS 36's general ones
IFRS 6 MODIFIES the application of IAS 36 for E&E assets by specifying facts and circumstances that indicate E&E assets should be TESTED for impairment – an entity assesses E&E assets for impairment when facts/circumstances suggest the carrying amount may EXCEED recoverable amount. IFRS 6 also permits the level at which E&E assets are assessed for impairment to be LARGER than the CGU normally required under IAS 36.
EXAMPLE IMPAIRMENT INDICATORS SPECIFIC TO IFRS 6
The period for which the entity has the right to explore in the specific area has EXPIRED, or will expire in the NEAR FUTURE, and is NOT expected to be renewed Substantive expenditure on further exploration/evaluation in the specific area is NEITHER budgeted NOR planned Exploration/evaluation activities have NOT led to the discovery of commercially viable quantities, and the entity has decided to DISCONTINUE such activities in the specific area Sufficient data exists to indicate that, although a development in the specific area is likely to proceed, the carrying amount is UNLIKELY to be recovered in full from successful development or by sale
Example 2: An expiring exploration licence
An entity holds an E&E asset of $3,500,000 relating to a specific licence area. The exploration licence is due to expire in 4 months, and management has confirmed it will NOT be renewed, since geological surveys have not indicated a commercially viable deposit.
This is a CLEAR IFRS 6-specific impairment indicator – the entity must ASSESS the E&E asset for impairment under IAS 36's recoverable amount test. Given no commercially viable deposit and no ongoing rights, recoverable amount is likely close to NIL, and a full write-off would typically be recognised.
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Presentation – Tangible vs Intangible Classification
Classifying E&E assets by their NATURE
An entity classifies E&E assets as TANGIBLE or INTANGIBLE according to the NATURE of the assets acquired, applying this classification CONSISTENTLY. Some E&E assets are treated as intangible (e.g. drilling rights, licences), while others are treated as tangible (e.g. vehicles, drilling rigs used in exploration). Where a tangible asset is CONSUMED in developing an intangible asset, the amount reflecting that consumption is part of the cost of the INTANGIBLE asset – but this does NOT change the tangible asset's own classification.
Consistent classification is required across an entity's WHOLE E&E asset base, but the underlying assets themselves retain their natural tangible/intangible character.
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Interaction with Other Standards
A deliberately narrow, standalone standard
Because IFRS 6 grants such significant policy flexibility for RECOGNITION, but is silent on many other detailed matters, an entity's E&E accounting policy typically DRAWS ON established principles from IAS 16/IAS 38 for classification and subsequent measurement mechanics, while relying on IFRS 6's own specific rules for the initial recognition scope and the modified impairment trigger.
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Disclosure Requirements
Required disclosures
GENERAL DISCLOSURES
Its accounting policies for exploration and evaluation expenditures, including the recognition of E&E assets Amounts recognised in its financial statements arising from the exploration for and evaluation of mineral resources (assets, liabilities, income and expense, operating and investing cash flows)
TREATED AS A SEPARATE CLASS
E&E assets are treated as a separate class of assets, and the ordinary disclosures required by IAS 16 or IAS 38 (as applicable) are provided for this separate class, consistent with the entity's tangible/intangible classification choice
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Critical Judgments & Estimates
Where management judgement matters most
SIGNIFICANT JUDGEMENTS
Which expenditures qualify for capitalisation as E&E assets, per the entity's own developed accounting policy Whether technical feasibility and commercial viability have become "demonstrable," triggering reclassification out of IFRS 6's scope Whether tangible or intangible classification is appropriate for each type of E&E asset
SIGNIFICANT ESTIMATES
Recoverable amount of E&E assets when an IFRS 6-specific impairment indicator arises The appropriate level (CGU or larger grouping) at which E&E assets are tested for impairment
Because IFRS 6 permits genuine policy diversity, COMPARABILITY between different extractive entities can be significantly LIMITED – two companies with economically similar exploration activities may report materially different E&E asset balances, purely due to differing (both entirely IFRS 6-compliant) capitalisation policies.
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IFRS vs US GAAP – Key Differences
Comparison – IFRS 6 vs US GAAP
FeatureIFRS (IFRS 6)US GAAP
Accounting policy flexibilityDeliberately BROAD – permits continuation of virtually any pre-existing E&E accounting policyMore PRESCRIPTIVE – US GAAP specifies detailed methods (e.g. "successful efforts" or "full cost" method) for oil and gas specifically, under ASC 932
IAS 8 policy hierarchy overrideExplicitly EXEMPTED from the normal IAS 8 policy-selection hierarchyNo comparable concept, since US GAAP is itself the single source of authoritative guidance with its own specific extractive industry rules
Impairment testing levelMay use a LARGER grouping than the normal CGUSpecific full-cost ceiling test or successful-efforts impairment rules apply, differing in mechanics from IAS 36
ComprehensivenessNarrow, transitional, deliberately incomplete standardMore comprehensive, detailed industry-specific US GAAP guidance (ASC 932) covering oil and gas activities specifically
IFRS 6 remains, by DESIGN, a narrower and less prescriptive standard than the equivalent detailed US GAAP extractive industries guidance.
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Statement Mapping – Where Every E&E Event Lands
Comprehensive event-to-statement mapping table
Event / transactionStatement(s) affectedNotes
E&E expenditure meeting the capitalisation policySOFPRecognised at cost as a tangible or intangible E&E asset
E&E expenditure NOT meeting the capitalisation policySOPLExpensed as incurred
Impairment indicator identified (IFRS 6-specific triggers)SOPL SOFPIAS 36 recoverable amount test applied; loss recognised if triggered
Reclassification out of E&E scope (feasibility demonstrated)SOFPImpairment tested FIRST, then reclassified to IAS 16/IAS 38
Revaluation (if the revaluation model is elected)OCI SOFPPer IAS 16/IAS 38 revaluation mechanics, depending on classification
Cash paid for E&E activitiesCash Flow StatementInvesting activities outflow, per IAS 7
Accounting policy, amounts recognised, separate class disclosuresNotesMandatory disclosure as a distinct asset class
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Related Standards – Cross-Reference Map
How IFRS 6 connects across the IFRS body of literature
StandardNature of the connection
IAS 8IFRS 6 EXPLICITLY exempts E&E accounting policy development from IAS 8's normal hierarchy – a unique, deliberate carve-out
IAS 16Governs tangible E&E assets once classified, and applies once an asset is reclassified out of IFRS 6's scope into the development phase
IAS 38Governs intangible E&E assets once classified, and applies once an asset is reclassified out of IFRS 6's scope
IAS 36Supplies the recoverable amount and CGU testing mechanics, MODIFIED by IFRS 6's own specific impairment indicators and the option to test at a larger grouping level
IAS 37Governs decommissioning and site restoration provisions often associated with mineral exploration activities
IAS 41Distinguishes mineral resource exploration from agricultural activity, ensuring no scope overlap between the two specialised standards
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Quick-Reference Glossary
Successful efforts method
An accounting policy capitalising exploration costs only for wells/projects that prove commercially successful, expensing costs for unsuccessful ('dry hole') efforts immediately.
Full cost method
An accounting policy capitalising ALL exploration costs within a defined cost centre, regardless of individual well/project success, subject to a ceiling test.
Technical feasibility
Confirmation that a mineral resource can genuinely be extracted using currently available technology and methods.
Commercial viability
Confirmation that extracting a mineral resource is expected to be economically profitable, given estimated reserves, costs, and market prices.
Specific area
A geographical area over which an entity has legal rights to explore, the basis on which many IFRS 6 impairment indicators are assessed.
Development phase
The stage following demonstrated technical feasibility and commercial viability, at which point expenditures fall OUTSIDE IFRS 6's scope and are accounted for under IAS 16/IAS 38.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows
History & Development
Dec-2004
In December 2004 the International Accounting Standards Board issued IFRS 6 Exploration for and Evaluation of Mineral Resources.
Mar-2018
Amendments to References to the Conceptual Framework in IFRS Standards and IFRS 18 Presentation and Disclosure in Financial Statements
Minor consequential amendment to IFRS 6