GUEST EDITORIAL – Mining Sector Faces IFRS Accounting Challenges

TORONTO - The mining sector faces many unique challenges in interpreting and applying International Financial Repor...


TORONTO - The mining sector faces many unique challenges in interpreting and applying International Financial Reporting Standards (IFRS), according to "Real Time: IFRS in the mining sector", a new report from PRICEWATERHOUSECOOPERS (PwC). For Canadian public companies, IFRS will converge with Canadian GAAP over a transitional period.

The changes will significantly affect the way financial reporting will be carried out by mining companies. "Real Time" is of particular interest to our country because it chronicles how the European Union has already done it.

In explaining the challenges faced by the industry, the report points out that many IFRS requirements do not specifically address important mining industry issues including:

- The need for large up-front investment, with low success rates on exploration spending and long lead-times on new projects.

- The existence of significant back-end costs, when mines are eventually closed, in decommissioning processing facilities, rehabilitating the sites and managing obligations to the workforce and local communities.

- The existence of activities that result in saleable production but also contribute towards the development of the mine, and hence deliver longer term benefits as well.

Areas of particular difficulty for the sector include the accounting for reserves and resources; deferred stripping (which has recently been outlawed under U.S. GAAP); commissioning and decommissioning; long term stockpiles; impairment, and; functional currency. IAS 39, dealing with the measurement of financial instruments, has also posed challengesas it has for many industries. Mining companies which assumed initially that their activities would fall outside IAS 39 have generally found that this is not the case, for example because of the rules on so-called "embedded derivatives".

A lot of companies have now completed their transition projects, and have produced their first annual reports under IFRS. "Real Time" provides insight into how companies have dealt with some of the key IFRS issues facing the industry, through examples of the accounting policies published in mining companies' IFRS financial statements.

Companies have adopted a consistent approach in many areas, and there is no doubt that the introduction of IFRS has advanced the transparency and comparability of financial statements. However, there are also some areas in which practice appears to vary across the industry. In such cases, the disclosure of a company's accounting policiesand also the consistent application of those policiesare particularly important.

Looking ahead, the International Accounting Standards Board (IASB) has established an Extractive Activities working group that may provide formal guidance in respect of many of the issues highlighted in the PwC report. However, the working group is not expected to issue guidance for several years. Within some sectors, companies have formed industry groups to discuss solutions and improve consistency, in the absence of detailed guidance from the standard-setters. However, this has not been the case in the mining sector.

Against this background, "Real Time" provides a useful agenda of topics for future discussion with the standard setters. The full report is available to download at Paul Murphy is leader of PwC's Canadian Mining Practice Group, and can be reached at


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