Canadian Institute of Chartered Accountants

Canadian Institute of Chartered Accountants

December 07, 2010 13:32 ET

IFRSs: What Mining Executives Need to Know

By Gordon Beal, CA

TORONTO, ONTARIO--(Marketwire - Dec. 7, 2010) -

Editors Note: A photo for this article will be available via Marketwire on the picture wire of The Canadian Press.

Mining companies adopting International Financial Reporting Standards (IFRSs) may experience more volatility in reported earnings and asset values. The changeover will not alter the economics of the business but may affect the way the financial performance is reported and the metrics used to discuss business performance with investors.

"The extent of the changes will depend on the nature of the company's activities," explained Glenn Ives, CA, Deloitte's North American Mining Leader. "Most will be able to retain their current treatment of costs during exploration and evaluation."

"Currently under IFRSs, specific accounting guidance for extractive industries is limited to the exploration and evaluation phase," said Gordon Heard, CA, Principal Advisor of The Finance Group. "With certain restrictions, IFRSs allow companies the choice of consistently expensing or capitalizing their exploration and evaluation expenditures."

Mr. Ives indicates the differences in the way asset impairments are measured may have a more significant impact. "It is expected impairment charges will be required more frequently under IFRSs," said Mr. Ives.

"When there are indicators that a property may be impaired, IFRSs require an immediate comparison to discounted future cash flows to determine whether an impairment charge should be recorded," explained Mr. Heard. "Currently companies compare to undiscounted cash flows to make that determination. The new impairment methods must be applied when IFRSs are first adopted. Due to special impairment provisions for exploration properties, the impact of these differences may be more significant for properties in the development or production phases."

"We expect to see more volatility in financial statements from the industry, especially when you consider that IFRSs require a reversal of previous impairment charges when economic circumstances change," added Mr. Ives.

In addition, acquisitions of businesses are treated differently and changes to IFRSs expected by the end of 2010 may significantly change how some joint ventures are reflected in the financial statements.

More changes to IFRSs are expected, with the potential for specific guidance on the treatment of stripping costs in the near term. In the longer term, a project is underway to determine whether more comprehensive standards for extractive activities should be developed.

The changeover to IFRSs is mandatory in 2011 for public companies with a December year-end and in the 2012 fiscal year for non-calendar year-ends. The investment community will expect executives to be able to speak to the changes with confidence.

More information about communicating with investors and other aspects of the changeover to the new accounting standards are available through a special website

Note: Gordon Beal, CA, Principal, Canadian Institute of Chartered Accountants, has played a leadership role in the CA profession's program of support for the changeover to IFRSs.

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