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IFRS For Extractive Industries Debated

by Robin Pilgrim,, London

09 April 2010

The International Accounting Standards Board (IASB) has published a discussion paper, 'Extractive Activities,' which is already generating controversy about the level of disclosure that should be required of companies in the mining and the oil and gas industry.

The consultation could result in a future International Financial Reporting Standard (IFRS) for extractive activities which forces companies to break down their costs and revenue on a country-by-country basis, and publish the figures in their financial statements.

A research team comprising members of the Australian, Canadian, Norwegian and South African accounting standard-setters analyzed and discussed accounting for extractive activities with a wide range of stakeholders in order to identify a possible approach for a standard on accounting for extractive activities. Accounting in these industries is problematic because of the difficulty in assessing the quantities that may be found and the costs involved in accessing and extracting the resources.

The current standard, IFRS 6 Exploration for and Evaluation of Mineral Resources, was issued in 2004 as an interim standard pending completion of this research project. Existing IFRSs do not specifically address accounting for the development and production of minerals or oil and gas properties, and do not include specific disclosure requirements that would help users to assess the nature and extent of the risks involved in the extractive activities.

Because of the lack of guidance on these issues, the accounting and disclosure practices of entities engaged in extractive activities often vary by industry, by jurisdiction, and by the size of the company.

Commenting on the publication of the discussion paper, Robert Garnett, Member of the IASB, said: "Mining and oil and gas companies are among the largest public companies in the world and it is important for users and preparers alike that the accounting in this area is transparent and comparable. This discussion paper is the result of intensive work of an international research team and has benefited a lot from extensive industry input. I thank all of those involved in the development of the discussion paper. We welcome feedback on whether the Board should add this project to its active agenda."

The IASB emphasized that the Paper takes into account feedback from a vociferous pressure group, "the Publish What You Pay coalition'. This group has already suggested that 'the proposals had been weakened by pressure from companies and the IASB had yet to clearly recommend reporting of the full information that investors and citizens need."

It is intent on advocating that company payments be reported in a country-specific manner, which, it says, investors and citizens need to "successfully assess risk and press for responsible governance," and it claims companies in these industries are resisting these disclosure requirements.

Richard Murphy of Tax Research LLP said in this pressure group's statement that tax authorities need country-specific tax and payments information to judge companies’ global profile and ensure that they are paying their dues at the right level and in the right place.

“The burden of proof ought to be on companies to show that their resistance to the proposal is not due primarily to reluctance in exposing their own tax profiles,” he said. He was alluding to multinational company practices of recording trade income in jurisdictions where taxes are lower through transfer pricing practices.

After considering the responses received on the discussion paper, the Board will decide whether to add the project to its active agenda.

This comprehensive report in our Intelligence Report series examines the global and national landscapes in which companies can use transfer pricing to improve their after-tax returns, including summaries of recent developments in design of the corporate supply train, the usefulness of 'offshore' in international corporate tax planning, and a section covering the spread of DTAAs and CFC laws. It is available in the Lowtax Library at and a description of the report can be seen at
TAGS: South Africa | tax | business | mining | law | accounting | Australia | oil and gas | International Accounting Standards Board (IASB) | transfer pricing | international financial reporting standards (IFRS) | financial reporting | standards | Africa

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