The new standard, which will apply to oil, gas and mining companies is designed as an interim step, pending a wholesale review by the IASB of accounting in the extractive industries. It will cover how the exploration and evaluation of mineral resources will have to be accounted for.

The standard's objective is to broadly ‘grandfather’ existing practices while achieving some improvements in comparability. KPMG anticipates that for most Australian companies, existing practice in relation to accounting for exploration and evaluation expenditure will be able to continue.

In Australia, AASB 6 has included guidance specifying the ‘area of interest’ accounting requirements and confirmed that exploration and evaluation assets will be assessed for impairment at no greater than the ‘area of interest’ level.

The main impact for Australian entities is that the balance of the existing standard covering accounting for extractive industries has been withdrawn. Companies operating in the industry will need to look elsewhere in the IFRS framework for guidance on accounting for development, construction, rehabilitation and amortisation pending the IASB’s more comprehensive industry project progressing.

KPMG said that it was keen for the IASB to now look forward in addressing the more pressing and broader accounting issues facing the extractive industries within the modern IFRS and US frameworks.

The firm said the gulf between the cost of exploration and the value of reserves discovered by exploration companies is a continuing area where accounting and business values diverge significantly, which reduces the relevance of the financial statements of companies in these industries.

Commenting on the standard, Alison Kitchen, Chairman of KPMG’s Energy and Natural Resources Group in Australia, said, “This standard is a sensible interim position for an area in IFRS that was lacking, and brings some clarity to extractive industries companies applying IFRS.”

“The challenge for the standard setters in the US and the IASB now is to reach a consensus on the way forward to more meaningful reporting by extractive industries companies in general.”