Because financial accounting for mining companies is complicated by the different phases of operations, public mining companies will have numerous issues to consider in their conversion to International Financial Reporting Standards (IFRS). Without a solid and carefully considered plan for transitioning, this process could be further complicated and comparatively more expensive.
Our experience helping the many mining companies throughout Europe, Africa and Australia complete their transition and apply IFRS since 2005 has provided us with good insight into the interpretation and application problems unique to the mining industry.
Key differences between IFRS and Canadian GAAP in each of the operation phases
- Exploration and evaluation. A variety of accounting practices are currently followed in Canada for exploration and evaluation expenditure. For example, some mining companies capitalize all such expenditure as a matter of policy, while others write off exploration costs as incurred until it is considered probable that a mine will be developed based on a feasibility study.
Under IFRS 6: Exploration and Evaluation of Mineral Resources, mining companies are allowed to retain their existing policies for the capitalization of exploration and evaluation costs until guidance that is more definitive is developed in this area. IFRS 6 also provides specific guidance on the facts and circumstances that indicate when a company should test exploration and evaluation assets for impairment, as well as the level at which these assets are assessed for impairment.
- Development. The mining industry is characterized by projects that often have long commissioning periods, during which production is ramped up towards the design capacity. Differences between IFRS and Canadian GAAP during this phase may include treatment of revenues, costs (including borrowing costs), and recognition of decommissioning and restoration liabilities at each period end reflecting the disturbance caused to the site at that date.
- Production. During the production phase, many areas of accounting in a mining company require careful consideration when adopting IFRS. These include depreciation, deferred stripping, impairment, joint ventures, functional currency, derivatives, business combinations and hedging.
For mining companies, adopting IFRS will also impact many other areas across an organization, including budgets, forecasts, performance measures, reward schemes and bonus structures.
How PwC can help
For a more in depth analysis of the industry-specific issues
PwC’s IFRS professionals have the experience you need to make the conversion process as smooth as possible. Contact us today.
