IFRS for the Minerals and Mining Sector (3 days)

Introduction

There are diverse accounting practices among companies in the worldwide extractive industry. The IASB has commissioned a research project to review accounting practices for extractive activities.

To provide some guidance and a transition for entities in the extractive industry that are adopting IFRS, the IASB issued IFRS 6 Exploration for and Evaluation of Mineral Resources, in December 2004. The Standard applies to expenditures incurred in connection with the exploration and evaluation of mineral resources.

This course summarizes the accounting and disclosure requirements of IFRS 6 and discusses the current status of the IASB’s work on accounting for extractive activities. Key accounting standards that affect the industry are also given in-depth coverage, such as IFRS rules on impairment of assets, recognition and measurement of assets, revaluations of certain qualifying assets, decommissioning and site restoration costs, accounting for reserves, disclosures, and hedge accounting. The program also provides guidance on accounting issues relating to joint ventures and production sharing agreements and includes an overview of the interpretation IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine”.

This comprehensive program also includes a review of US GAAP relevant to extractive industries.

The course answers questions such as:

• What are the accounting and disclosure requirements of IFRS 6 Exploration for and Evaluation of Mineral Resources?
• What are the different accounting requirements for production and exploration assets?
• How does the diversity in accounting practices in the extractive industry affect financial reporting and what is the IASB’s response?
• How does IFRS 1 First-time Adoption of International Financial Reporting Standards, apply to extractive industries, what are the first-time adoption rules, and how will this affect your transition?
• How does IFRS relate to asset retirement and costs associated with decommissioning mines as well as restoration / rehabilitation?
• What are the critical compliance issues relating to hedge accounting?
• When are options available for valuing tangible assets (property, plant and equipment) and what are the optional treatments?
• When are options available for valuing intangible assets and what are the optional treatments?
• How are the recognition and measurement rules for impairment applied?
• What are some of the issues specific to mining sector business combinations?
• In what manner are joint ventures structured in the minerals and mining sector?
• Which impact does IFRS 11 “Joint Arrangements” have on the accounting treatment of joint ventures and other joint arrangements?
• What are the external financial reporting requirements for joint ventures?
• Where can relevant accounting guidance for the extractive industry be found under IFRS and US GAAP?
• How are stripping costs in the production phase of a surface mine accounted for?

Learning Objectives

• Understand and apply the accounting and disclosure requirements of IFRS 6 Exploration for and Evaluation of Mineral Resources
• Appreciate the diversity in accounting practices in the extractive industry and the IASB’s project to review those practices
• Apply hedge accounting
• Recognize the relevant accounting guidance for the extractive industry under US and Canadian GAAP
• Understand the options available for valuing tangible assets
• Interpret the complex rules on evaluating assets for impairment
• Complete a smooth transition to IFRS
• Understand the nature and structure of joint ventures in the minerals and mining industry
• Learn the external financial reporting requirements for joint ventures
• Comprehend the mechanisms of financing and reporting the operations of joint ventures
• Appreciate the issues regarding intra-partner relationships, including cost allocation and audits
• Become familiar with IFRS 11 “Joint Arrangements” and its impact on the accounting treatment of joint ventures and other joint arrangements
• Understand the rules of the interpretation IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine”

Who Should Attend

• CFO's new to the minerals and mining industry
• CFO's of mineral and mining companies in the process of adopting IFRS
• Financial and management accountants in the minerals and mining industry
• Internal and external auditors of minerals and mining companies reporting under IFRS
• Financial analysts seeking to improve their understanding of the accounting by minerals and mining companies

Topics

• Features of the Minerals and Mining Industry
  • Non renewable reserves
  • Scale of capital investment
  • Pattern of cash flows
  • Risks
  • Variety of business structures
• Accounting Issues in the Minerals and Mining Industry
  • Challenge of representing the mining industry in a context of historical cost accounting
  • Disparity between cost and value
  • Exploration: capitalization vs. expense
  • Full cost vs. successful efforts
  • Fixed assets
    • Capitalized costs
    • Impairment
  • Decommissioning and site restoration
  • Joint ventures
  • Reserves and other disclosures
  • Hedge accounting
• IASB’s project on Extractive Activities
  • Objectives
  • Recommendations
  • Role of the IASB Framework for the Preparation and Presentation of Financial Statements
• Exploration and Evaluation
  • IFRS 6 Exploration for and Evaluation of Mineral Resources
    • Recognition and measurement
    • Reclassification
    • Impairment
    • Disclosures
  • Full cost accounting
  • Successful efforts accounting
• Property, Plant and Equipment
  • IAS 16 summary
  • Asset categories
  • Directly capitalized vs. transfer from exploration and evaluation
  • Depreciation, depletion and amortization
  • Composite asset accounting
  • Capitalization of borrowing costs – IAS 23
  • Cost model vs. revaluation model
  • Worked example
  • Disclosures
• Impairment
  • IAS 36 summary
  • Why is impairment an issue for the minerals and mining industry?
  • General rules for impairment testing
  • Cash generating units
  • Recognition and measurement of impairment losses
  • Reversal of impairment losses
  • Worked examples
  • Disclosures
• Decommissioning Costs and Site Restoration
  • IAS 37 summary
  • Nature and extent of requirement
  • Recognition of cost
  • Recognition of liability
  • Amortization of cost
  • Accretion of liability
  • Changes to decommissioning liabilities – IFRIC 1
  • Worked example
  • Disclosures
• Joint Arrangements
  • Reasons for joint ventures
  • Relationship between operator and non-operator
  • Accounting for joint operations
  • Equity accounting of joint ventures
  • IFRS 11 “Joint Arrangements”
  • Internal accounting procedures
  • Joint venture audits
  • Disclosures
• Valuation and measurement
  • Going concern versus liquidation scenarios
  • Valuation of exploration assets
  • Valuation of mineral deposits
  • Valuation of production assets
  • Reliance on competent persons
  • Valuation disclosures
• Stripping costs in the production phase of a surface mine
• Resources and reserve statements and other disclosures
  • Reserve definitions and disclosures
  • Use of reserves in accounting
  • Other disclosures
  • Examples of published disclosures
• Hedge Accounting
  • Summary of the principles in IAS 39 and IFRS 9
  • Risk management in the minerals and mining industry
  • Hedge accounting under IAS 39
  • Practical issues
  • Published disclosures
  • Comparison of IAS 39 hedge accounting with IFRS 9
• Selecting and Amending Accounting Policies
  • Selecting accounting policies in the minerals and mining industry
  • IAS 8 summary
  • IFRS 1 summary and how IFRS 1 relates to the minerals and mining industry
  • Retrospective vs. prospective application
  • Successful efforts vs. full cost under IFRS
  • Reasons for changing accounting policies
  • Strategy for changing accounting policies
  • Published disclosures
• Comparison between IFRS and other national GAAP
  • Comparison with US GAAP

Teaching Method

• Group live instruction, cases, examples, group work, open discussions
• Explanation and demonstration of the accounting rules relating to expenditures for the exploration for and evaluation of mineral resources
• Explanation and demonstration of the accounting issues relating to joint venture arrangements
• Presentation of the rules for impairment of assets, with practical examples
• Explanation and demonstration of the asset measurement and revaluation options
• Explanation and pertinent examples of hedge accounting
• Discussion of US and Canadian GAAP relevant to the extractive industry
• Presentation and discussion of worked examples, model financial statements and disclosures
• Group discussion and interactive participation is encouraged
• All participants receive a comprehensive binder containing copies of the presentation slides, handouts and other course materials

Instructors

Venue

CPE/CPD Accreditation

IASeminars is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org.

 

Field of study: Accounting

Prerequisites

Knowledge of basic accounting under any national standards. No advance preparation is required for this course.