Newmont. AngloGold Ashanti. Gold Fields. Tullow. Kosmos. ENI. Every one of these companies operating in Ghana applies a specific IFRS standard to account for the money it spends searching for gold, oil and gas — and it’s a standard almost no ICAG student has ever opened, because it rarely anchors a past question. That’s IFRS 6, Exploration for and Evaluation of Mineral Resources. This article gives you the full mechanics, paragraph by paragraph, plus a worked illustration.
Why IFRS 6 Exists
Before IFRS 6 was issued by the IASB in December 2004, there was no IFRS addressing exploration and evaluation spending at all — it was explicitly excluded from both IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets. Companies were left applying IAS 8’s general hierarchy to invent their own policy, and practices diverged wildly across the extractive sector. IFRS 6 was a deliberately limited fix: enough structure to bring consistency, without a full standard on extractive activities that the IASB didn’t have time to complete before 2005’s mass IFRS adoption.
Scope: Where IFRS 6 Starts and Stops
Paragraph 3 applies the standard to “exploration and evaluation expenditures that it incurs.” Paragraph 5 sets two hard boundaries: it does not apply before the entity has the legal right to explore a specific area, and it does not apply once the technical feasibility and commercial viability of extraction are demonstrable. Too early, and general principles apply. Too late, and you’re in IAS 16 or IAS 38 territory.
The Unusual Recognition Rule
Paragraph 6 grants a temporary exemption from IAS 8 paragraphs 11 and 12 — the rules that normally force an entity, absent a specific standard, to build an accounting policy using a strict hierarchy. IFRS 6 says an entity can simply keep whatever policy it already used for exploration and evaluation costs before adopting the standard.
Measurement, Classification, and the Reclassification Trap
Paragraph 8 fixes measurement at cost. Paragraph 9 lists what qualifies: acquisition of exploration rights, geological and geophysical studies, exploratory drilling, trenching, sampling, and feasibility evaluation activities. Paragraph 10 excludes development expenditure entirely — that’s IAS 38 or Framework territory. Paragraph 11 folds in IAS 37 for removal and restoration obligations.
Paragraphs 15 to 17 govern classification: tangible or intangible, based on the nature of the specific asset, applied consistently. The rule that catches people out is reclassification — once technical feasibility and commercial viability become demonstrable, the asset must be tested for impairment and any loss recognised before it is reclassified out of the exploration-and-evaluation category. Test first. Reclassify second.
The Unique Impairment-Trigger List
Paragraph 20 sets out four indicators specific to IFRS 6 that trigger an impairment test: the right to explore has expired or will soon expire without expected renewal; no further exploration spending is budgeted or planned; exploration hasn’t found commercially viable quantities and the entity has decided to discontinue; or sufficient data shows the carrying amount is unlikely to be recovered in full. Once triggered, the loss itself is measured under IAS 36 as normal.
Exam Tip: If a corporate reporting scenario mentions a mining or oil and gas company, check for two things immediately: has technical feasibility become demonstrable (reclassification, impairment test first), and does any of paragraph 20’s four indicators apply (impairment test regardless of reclassification)?
Worked Illustration: Adom Frontier Minerals Ltd
This illustration is a Profs-constructed teaching example, not a quotation from a real ICAG examination question.
Adom Frontier Minerals Ltd secures exploration rights to a gold concession and spends GH¢4.2 million on surveys, drilling and sampling — capitalised at cost per paragraph 8, classified as intangible (drilling rights) and tangible (drilling rigs) per paragraph 15. Eight months later, two of paragraph 20’s indicators appear together: no further exploration spending is budgeted, and drilling data suggests the carrying amount won’t be recovered in full. An impairment test is triggered under paragraphs 18–19, with the loss measured under IAS 36. On a separate concession where a viable deposit is confirmed, the asset must be tested for impairment and any loss recognised before it is reclassified out of “exploration and evaluation” entirely.
Conclusion
IFRS 6 rarely appears in past questions, which is precisely why it’s a smart use of your remaining study time — a scenario built around a mining or oil and gas company is exactly the kind of question designed to separate candidates who know the full syllabus from those who only drilled what’s come before.
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