Ifr Mining

ENERGY & NATURAL RESOURCES
Impact of IFRS:
Mining
kpmg.com/ifrs
KPMG International
Contents
Overview of the IFRS conversion process 2 Parallel reporting: Timing the changeover
from local GAAP to IFRS reporting 28
Accounting and reporting issues 3
Harmonisation of internal and external reporting 30
Exploration and evaluation (E&E) expenditure 5
Development assets 8 People: Knowledge transfer and change management 31
Impairment of non-financial assets 10 Business and reporting 32
Mine closure and environmental provisions 12 Stakeholder analysis and communications 32
Joint arrangements 14 Audit Committee and Board of Directors
Stripping costs 16 considerations 32
Reserves and resources reporting 18 Monitoring peer group 32
Financial instruments 20 Other areas of IFRS risk to mitigate 32
First-time adoption of IFRS 22 Benefits of IFRS 33
Information technology and systems considerations 24 KPMG: An experienced team, a global network 34
From accounting gaps to information sources 24
Contact us 35
How to identify the impact on information systems 25
Mining accounting differences and
respective system issues 26
© 2012 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Impact of IFRS: Mining 1
Foreword
Accounting for mining activities This publication looks at some of the

presents many difficulties. Significant main accounting issues across mining
upfront investment, uncertainty over companies. It considers currently
prospects and long project lives have effective standards and notes future
led to a variety of approaches being developments that could impact
developed by companies, and a range accounting in the sector.
of country-specific guidance for
The long-term future of accounting for
the industry.
extractive activities is as yet unclear. The
Many countries have required IFRS IASB issued Discussion Paper Extractive
reporting for some companies since Activities in April 2010, and the main
2005 and companies around the world proposals of the project team and the
continue to adopt IFRS. Japan has responses to this discussion paper are
already permitted the early adoption discussed in this publication. A decision
of IFRS by listed companies and is on whether the Extractive Activities
expected to announce a final decision project should be added to the IASB’s
on whether to mandate adoption later in active agenda is expected when the
2012. The US is yet to announce its plan IASB considers responses to its Agenda
as to how IFRS might be incorporated Consultation 2011.
into the financial reporting requirements
This publication also discusses the IFRS
for US domestic issuers. This means
conversion project as a whole, including
that there are many companies for
the importance of the conversion
whom IFRS conversion issues are, or
management process, and considers
will become, relevant.
the impact of IFRS conversion across
As countries adopt a single set of high an organisation.
quality, global accounting and financial
Any conversion project will be
reporting standards there should
significantly more detailed than merely
be greater global consistency and
addressing the issues discussed in this
transparency. However, it is recognised
publication. However, making a start in
that extractive activities is an area in
identifying the accounting and business
which there is little IFRS guidance. There
related issues on conversion can avoid
is also variation in practice between
accounting challenges in years to come.
companies applying IFRS, which was
highlighted in KPMG’s survey The While the main audience of this
Application of IFRS: Mining published in publication is those contemplating
September 2009. IFRS conversion, we hope that there
is something stimulating and thought-
provoking for all those dealing with IFRS
in the mining sector.
Jimmy Daboo Wayne Jansen

Global Energy & Natural Resources Global Head of Mining
Auditing and Accounting Leader KPMG
KPMG
2 Impact of IFRS: Mining
Overview of the IFRS conversion process

Addressing challenges and between the issues faced by mining the business. The conversion should
companies. However, there always will address proactively the challenges and
opportunities of conversion for be differences in the corporate DNA that opportunities of adopting IFRS to all
all aspects of your business makes one conversion project different aspects of your business. This includes,
from the next. for example, consideration of the impact
All IFRS conversions have consistent
of IFRS transition on the regulatory
themes and milestones to them. The IFRS Conversion Management
aspect of your operations, which may
The key is to tailor the conversion Overview diagram below presents
vary depending on state, federal,
specifically to your own issues, your a holistic approach to planning and
international, product, reporting and
internal policies and procedures, the implementing an IFRS conversion
competitive requirements.
structure of your group reporting, by helping ensure that all linkages
the engagement of your stakeholders and dependencies are established
and the requirements of your corporate between accounting and reporting,
governance. There may be similarities systems and processes, people and
Identify GAAP differences Identify information ‘gaps’ for

Quantify differences conversion
Identify IFRS disclosure requirements Assess impact on internal
controls/processes
Select and adopt accounting
policies and procedures Identify current system
functionality/suitability, related
Assess impact on legal entity
new information technology (IT)
reporting
system needs and period-end close
Tailor financial reporting templates contingency plans
Revise and/or design and implement Tailor chart of accounts considering
templates for data gathering IFRS accounting needs
Develop communication plans for all Develop and execute training plans:
stakeholders including: IFRS technical topics
Regulator(s) New accounting policies and
Audit Committee reporting procedures
Senior Management Changes in processess and controls
Investors Revise performance evaluation targets
External Auditors and measures
Assess internal reporting and key Communication plans
performance indicators
Consider impact on incentive
Assess impact on general business compensation programs
issues such as contractual terms,
Focus on key functions that will
treasury practices, risk management
undergo change (e.g. prospect
practices, etc.
evaluation group)
Accounting and reporting issues

Early identification of Based on KPMG firms’ experience of that may be relevant, such as defined
IFRS conversions, we outline below benefit pension scheme accounting,
differences is critical to a the main sector-specific accounting share-based payments, presentation
successful conversion project issues for mining companies to consider of financial statements and business
when converting to IFRS, and provide a combinations are discussed in a cross-
The first and fundamental area to tackle
glimpse of the issues to be considered. industry context in some of our other
is accounting and reporting. Getting a
publications (see the back cover).
timely and accurate assessment of the This is not meant to be a comprehensive
impact of IFRS and ensuring the ‘gap list, but instead seeks to discuss some
analysis’ is correct are critical steps to a of the key areas in which specific
successful transition. mining-related issues arise. Other areas
1 Exploration and evaluation (E&E) expenditure 6 Stripping costs
2 Development assets 7 Reserves and resources reporting
3 Impairment of non-financial assets 8 Financial instruments
4 Mine closure and environmental provisions 9 First-time adoption of IFRS
5 Joint arrangements
In our experience, these issues are For example, the impact of different ●● Accounting and reporting
significant to mining companies for the depreciation and amortisation policies requirements may be subject to
following reasons. may lead to adjustments in the asset future change for which companies
sub-ledger. need to be prepared.
●● Issues may be pervasive across the
sector and will require significant time ●● Accounting requirements may require We recommend KPMG’s publication
and cost to evaluate and implement; careful consideration of contract The Application of IFRS: Mining for
for example, accounting for E&E terms, for example those terms greater detail on the issues raised in this
expenditure and assets. outlined in joint arrangements. publication, and examples of disclosures
from existing IFRS mining companies.
●● Conversion may have a significant ●● Judgement may be required in
impact on information systems, selecting significant accounting
accounting processes and systems. policies that impact future results.
Discussion
Paper
Extractive
Activities
IFRS 6 Exploration for
and Evaluation of Mineral
Resources was only
intended to be a temporary
measure. The future of
accounting for E&E expenditure
is not yet clear.
The International Accounting
Standards Board (IASB) issued
a discussion paper Extractive
Activities in April 2010. The
discussion paper outlined a
revised framework for accounting
for extractive activities. A decision
on whether the Extractive Activities
project should be added to the IASB’s
active agenda is expected when the
IASB considers responses to its Agenda
Consultation 2011.
If the IASB adds a project on extractive
activities to its active agenda, then it will take
the discussion paper and the 141 comment
letters received as the basis for its initial
deliberations.
The discussion paper and responses are
discussed throughout this section of the
publication. It is clear that there is currently
variation in accounting and opinions between
companies in the extractive industries, and the
discussion paper generated significant interest in
the mining sector. The responses to the discussion
paper highlight the range of opinions on the future of
accounting for mining operations under IFRS.
1 Exploration and evaluation (E&E) expenditure
IFRS provide flexibility for mining companies when selecting accounting policies for E&E
expenditure
The costs involved in E&E and Applying this test, it might be rare Classification and
development activities are considerable, for expenditure other than licence
subsequent measurement
and often there are years between or property acquisition costs to be
the start of exploration and the capitalised prior to the determination Classification of expenditure forms
commencement of production. Even of reserves. the basis of presentation and
with today’s advanced technology, subsequent measurement of assets
IFRS 6 relaxes this approach for E&E
exploration is a risky and complex E&E assets are a separate class of
assets, allowing capitalisation of
activity. These factors create specific asset that is measured initially at cost.
E&E costs by expenditure class if the
challenges in accounting for E&E E&E assets are classified as tangible or
company elects that accounting policy.
expenditure. intangible assets depending upon their
In KPMG’s 2009 survey The Application nature. Tangible E&E assets may include
There was no IFRS that specifically
of IFRS: Mining, just under half of the the items of plant and equipment used
addressed E&E activities until IFRS 6
companies surveyed capitalised at least for exploration activity, such as vehicles
became effective in 2006. The standard
some E&E expenditure, the remainder and drilling rigs. Intangible E&E assets
was intended to be temporary while
expensing all E&E costs as incurred. may include costs of exploration permits
the IASB undertook an in-depth project
on extractive activities. With that in and licences.
mind, IFRS 6 was written with a view Definition of E&E expenditure The accounting policy adopted for E&E
to allowing companies to carry over to The stage of a project is important assets affects classification of the
IFRS their previous GAAP practices to a in determining the accounting related cash flows in the statement
large extent. standards to be applied of cash flows. When E&E expenditure
Traditionally under national GAAPs, IFRS 6 applies only to E&E expenditure. is expensed as incurred, the related
mining companies have accounted for Outside of the scope of IFRS 6 the cash flows are classified as operating
E&E costs in a variety of ways, including usual IFRS accounting requirements activities, whereas cash flows that
the area of interest method. This apply, including in respect of result in the recognition of an asset are
method is not defined in IFRS 6, and the impairment testing. classified as investing activities.
approaches taken to accounting for E&E The standard provides a non-exhaustive Tangible or intangible E&E assets
costs vary. list of E&E expenditure that may with a finite life are depreciated or
be capitalised, including the cost of amortised over their useful economic
Capitalisation of E&E geological and geophysical studies, life. This starts only when an asset is
expenditure the acquisition of rights to explore available for use. Certain E&E assets,
and sampling. for example vehicles, may be available
IFRS 6 relaxes asset recognition for use immediately and so may be
requirements for E&E expenditure The stage of projects needs to be amortised during the E&E phase. Other
Without the benefit of IFRS 6, monitored to ensure accounting E&E assets may not be available for
expenditure would not be recognised as policies are applied appropriately. IFRS use until a mine is ready to commence
an asset unless it is probable that it will 6 excludes pre-licence expenditure operations.
give rise to future economic benefits. from the scope of E&E costs, implying
This would mean that expenditure on that E&E activities commence on
an exploration activity would likely be acquisition of the legal rights to explore
expensed until the earlier of the time an area. Also, IFRS 6 does not apply to
at which: expenditure incurred after the technical
feasibility and commercial viability of
●● the estimated fair value less costs extracting the mineral resource are
to sell of the exploration prospect is demonstrable. Determining the point
positive; or at which this test is met can involve
●● it is determined that proved and considerable judgement and requires
probable reserves are present. close communication between finance
and technical specialists.
Discussion Paper Extractive Activities

The discussion paper supported project to reconsider intangible assets the scope of a future project should
a separate accounting model for accounting. extend beyond extractive activities.
E&E costs in extractive industries.
The case for a broader project on ●● Use existing accounting methods,
The views of respondents varied
intangible assets relates to the such as ‘successful efforts’
significantly on the approach that the
question of whether extractive accounting (19%).
IASB should take, and on the asset
activities are sufficiently different from
recognition model. The range of responses and the
other industries to justify a separate
concerns raised underline the
The project team’s proposals related to accounting model. For example, the
difficulties in accounting for E&E
E&E assets included the following. uncertainty and long project lives
assets and the divergence of practice.
inherent in E&E activities are similar
●● A single accounting approach
to issues in the technology and Measurement at historical cost
for both minerals and oil and gas
pharmaceutical industries. preferred
extractive activities.
Almost all respondents agreed with
Recognition of an asset upon Asset recognition proposals
●●
the proposal to measure assets at
the acquisition of legal rights and problematic
historical cost because it is a measure
capitalisation of all subsequent Most respondents expressed at
that is verifiable, can be prepared in
expenditure as part of that asset. least some concern with the asset
a timely manner and can be used to
This would include expenditure that recognition model proposed by the
assess financial performance and
may be expensed currently. project team. While the majority
stewardship. These respondents
(63%) agreed with the proposal to
Three possible measurement bases explained that they did not support
●●
recognise an asset when the legal
for assets arising from extractive fair value because it would introduce
right is acquired, a significant majority
activities: historical cost, current excessive subjectivity and short-term
of respondents (88%) disagreed
value and a mixture of historical cost volatility to the financial statements.
with the project team’s view that
and current value. The project team It was also thought that the use of
the subsequent E&E activity would
recommended historical cost as the fair value would impose significant
always represent an enhancement of
preferred measurement basis. preparation and audit costs that are
the asset.
not justified because users are not
Single and separate approach for Many of those respondents suggested interested in that information.
mining and oil and gas activities that the project team’s analysis of
The research conducted by the
The project team proposed to limit the the treatment of E&E assets was
project team indicated that analysts,
scope of a future IFRS to extractive inconsistent with the asset recognition
lenders and venture capitalists
activities for minerals, oil and criteria and the IFRS conceptual
would make only limited use of a
natural gas. A single accounting and framework. This was on the basis that
single-point estimate of fair value
disclosure model was proposed. the information obtained may not have
due to the subjectivity and degree of
any future economic benefit due to
The responses highlighted the broad estimation involved.
uncertainty in the exploration process.
range of views on this subject.
Respondents urged the IASB to
Of respondents to the discussion
consider asset recognition further.
paper who addressed this question,
Respondents who disagreed with the
62% agreed with the single model
asset recognition model made the
approach. Respondents who
following suggestions of alternative
stated that they didn’t believe that
approaches.
a separate accounting standard is
required included some major mining ●● Recognise a mining/oil and gas
companies. Some respondents property asset on the same
supported a disclosure standard basis as other assets (e.g. in
that applies a single approach to accordance with IAS 38 Intangible
oil and gas and mining companies, Assets, IAS 16 Property, Plant and
some commented that separate Equipment and/or the framework)
standards should be developed (42%). Respondents who supported
for each of mining and oil and gas, this approach to asset recognition
and some supported including typically also recommended that
extractive activities in a broader
2 Development assets
Mining companies are faced with the challenging tasks of establishing policies for
development expenditure, detailed asset tracking and component accounting
Beyond the E&E stage, there is no production begins. Significant Classification and
IFRS that addresses specifically accounting issues include consideration identification
development activities by mining of which costs should be capitalised and
companies. An accounting policy is the determination of when development Determining when development
developed under the hierarchy for the ends and production begins. In begins and ends is a significant
selection of accounting policies under practice this is further complicated, accounting issue for mining
IFRS. The mine development phase as development often continues once companies
generally begins after the completion production has begun. Companies should re-evaluate the
of a feasibility study and ends when tangible/intangible classification
of E&E assets upon transfer to An item of property, plant and estimates should be calculated
the development asset category. equipment should be separated into or approximated. Consequently,
Identifiable tangible assets that components when those parts are practice varies as to how reserves
cease to be classified as E&E assets significant in relation to the total cost are incorporated into the calculation
generally will be classified as tangible of the item. This does not mean that a of depreciation.
development assets, e.g. a vehicle company should split its assets into an
that will also be used in production. infinite number of components if the
Identifiable intangible E&E assets, effect on the financial statements would
for example a licence or permit, may be immaterial. IAS 16 allows companies Discussion
continue to be classified as an intangible to group and depreciate components
asset, or may be reclassified as a within the same asset class together, Paper Extractive
tangible asset if the intangible asset is
considered to be integral to the tangible
provided they have the same useful life
and depreciation method.
Activities
development asset and the tangible The scope of the discussion
Companies need to consider the impact,
element of the asset is more significant. paper did not specifically
including on accounting systems, of
A company capitalises the construction depreciating assets on a much more include depreciation
cost of developing the infrastructure detailed level when compared to The discussion paper did not
necessary to extract the minerals and previous GAAP. propose to change the basis for
the costs of the plant and equipment calculating depreciation, although
it highlighted some issues relating
used in transporting and processing the Depreciation to the application of the unit-of-
product. These costs are capitalised in
accordance with IAS 16 Property, Plant Companies need to choose the production method. One issue is
and Equipment. Capitalised costs may most appropriate depreciation whether such a method should
include directly attributable staff costs method. Determining when an asset be based on revenues or physical
associated with the construction of the is available for use is an important units. Another issue is whether
assets and other direct overheads. judgement the unit-of-production method
Depreciation or amortisation starts should be based on proved
Determining when development ends when an asset is available for use. It reserves, proved and probable
and production begins is a significant may be that development assets are reserves or another unit basis.
accounting issue for mining companies. determined as being available for use The project team proposed that
Generally, apart from certain stripping when commercial levels of production these issues be addressed in any
costs (see section 6), during the are capable of being achieved. future standard.
production phase costs are no longer Determining when commercial levels
capitalised and depreciation of of production have been achieved is a
development assets starts. significant judgement by management.
In practice, development often IFRS does not specify one particular
continues during the production phase method of depreciation as preferable.
and a company capitalises development Mining companies have the option
costs in accordance with IAS 16 if it is to use the straight-line method, the
probable that future economic benefits reducing balance method or the unit-of-
will flow to the company. production method, as long as it reflects
the pattern in which the economic
Component accounting benefits associated with the asset
are consumed. The unit-of-production
Significant judgement may be
method is most commonly used to
required in determining components,
depreciate/amortise mining assets,
and systems need to be capable of
using a ratio that reflects the annual
tracking components separately
production in proportion to the estimate
Companies need to allocate the cost
of reserves within that mine or area of
of an item of property, plant and
mine.
equipment into its significant parts,
or ‘components’, and depreciate each IFRS provides no specific guidance
part separately. For each component on the reserves, or reserves and
the appropriate depreciation resources, measurement to be
method, rate and period needs to be used in the calculation of unit-of-
considered. This process may involve production depreciation, or on how
significant judgement. the assumptions within the reserve
3 Impairment of non-financial assets
Impairment testing requirements are relaxed for E&E assets
E&E assets Impairment testing calculations ●● Market value has declined

are performed in line with general significantly or the company has
E&E assets are exempt from certain impairment requirements. operating or cash losses. For
impairment testing requirements example, a significant downward
IFRS 6 requires E&E assets to be Development and production movement in commodity prices may
assessed for impairment in two result in operating cash losses and
circumstances. assets represent a trigger for impairment.
●● When facts and circumstances Reporting date consideration of ●● Technological obsolescence.
suggest that the carrying amount impairment indicators
of an E&E asset may exceed its For non-current assets (other than ●● Competition.
recoverable amount. goodwill and E&E assets) IAS 36 ●● Market capitalisation. For example,
Impairment of Assets requires the carrying amount of the mining
●● When E&E activities have been companies to assess at the end of
completed, i.e. when the commercial company’s net assets exceeds its
each reporting period whether there market capitalisation. This may be
viability and technical feasibility of are any indicators that an asset is
that asset have been determined a particular risk for companies with
impaired. If there is such an indication, significant E&E assets.
and prior to reclassification to then the recoverable amount needs to
development assets. be assessed. ●● Significant regulatory changes. For
The standard provides the following example, renewed regulation of
An impairment loss is recognised for environmental rehabilitation processes.
examples of ‘trigger events’ that any excess of carrying amount over
indicate that an E&E asset should be recoverable amount. If the recoverable ●● Physical damage to the asset. For
tested for impairment: amount cannot be determined for the example, damage to a mine shaft
●● expiration of the right to explore; individual asset, because the asset caused by collapse or flooding.
does not generate independent cash Significant adverse effect on the
substantive expenditure on further
●●
inflows separate from those of other
●●
exploration for and evaluation of company that will change the way
assets, then the impairment loss is the asset is used/expected to be
mineral resources in the specific recognised and measured based on
area is neither budgeted nor used. For example, re-nationalisation
the cash-generating unit to which the by some governments may lead
planned; asset belongs. to some projects being diluted to
●● commercially viable reserves have Cash-generating units (CGUs) accommodate a government interest.
not been discovered and the company A CGU is the smallest group of
plans to discontinue activities in the assets that generates cash inflows Goodwill
specific area; and from continuing use that are largely
independent of the cash inflows from Impairment testing at least annually
●● data exists to show that while
other assets or groups of assets of the Under IFRS, companies are required to
development activity will proceed,
mining company. test goodwill (and intangible assets with
the carrying amount of the E&E
indefinite useful lives) for impairment
asset will not be recovered in full In our experience, many companies in at least annually, irrespective of
through such activity or by sale the mining sector base the identification whether indicators of impairment
of the project to which the E&E of CGUs on licence or permit areas. For exist. Additional testing at interim
asset relates. some companies that operate a number reporting dates is required if impairment
This provides relief from the general of areas that have shared infrastructure, indicators are present. Goodwill by
requirements of IFRS, which require the identification of CGUs can be itself does not generate cash inflows
annual impairment testing for intangible more complex. independently of other assets or groups
assets that are not yet available for Indicators of impairment of assets and therefore is not tested
use, and annual consideration of more Some examples of indicators of for impairment separately. Instead, it
extensive impairment indications for impairment are outlined below. should be allocated to the acquirer’s
other assets. CGUs that are expected to benefit

Exemption from applying IAS 36 to E&E assets
The project team proposed that IAS 36 should not be applied to E&E
assets. The basis for this proposal was a view that it is not possible to
make a reliable judgement of whether the carrying amount is less than
the recoverable amount until sufficient information is available.
Under the proposed approach, E&E assets would be tested
for impairment when management determines that there is a
high likelihood that the carrying amount of the asset will not
be recovered.
Of respondents who commented on impairment, most (73%)
opposed the proposals. Some respondents suggested that
the IASB include a review of IAS 36 in any future project to
alleviate difficulties in applying IAS 36 to E&E assets. The
potential of the proposed approach to delay recognition
of any impairment loss and the reliance on management
judgement were noted by some respondents.
Some respondents remarked that if the IAS 36
impairment test approach is not considered to work for
E&E assets, then this may imply that the project team
has proposed the wrong asset recognition model.
from the synergies of the related

business combination.
Goodwill is allocated to a CGU that
represents the lowest level within
the company at which the goodwill is
monitored for internal management
purposes. The CGU cannot be larger
than an operating segment as defined
in IFRS 8 Operating Segments, before
aggregation. An impairment loss
is recognised and measured at the
amount by which the CGU’s carrying
amount, including goodwill, exceeds its
recoverable amount.
Impairment reversals
Reversal of impairment losses
restricted
Impairment losses related to goodwill
cannot be reversed. However, for other
assets companies assess whether
there is an indication that a previously
recognised impairment loss has
reversed. If there is such an indication,
then impairment losses are reversed,
subject to certain restrictions.
4 Mine closure and environmental provisions
IFRS may result in earlier recognition of provisions than previous GAAP
Mining companies often are exposed Measurement

to legal, contractual and constructive
obligations to meet the costs of Judgement is required to arrive at the
mine closure at the end of the mine’s ‘best estimate’
economic life and to restore the The provision is measured at the best
site. These costs are likely to be a estimate of costs to be incurred. This
significant item of expenditure for most takes the time value of money into
mining companies. account, if material. The best estimate
typically will be based on the single
Timing of recognition most likely cost of mine closure and
takes uncertainties into account in
A present obligation that is more either the cash flows or the discount
likely than not rate used in measuring the provision.
Mine closure and environmental The discount rate should reflect the risks
provisions are covered by IAS 37 specific to the liability, and the process
Provisions, Contingent Liabilities and of doing this often is complex and
Contingent Assets. Recognition of a involves a high degree of judgement.
provision is required when there is
There are many complexities
a present obligation and an outflow
in calculating an estimate of
of resources is probable. Probable is
the expenditure to be incurred.
defined as more likely than not.
Technological advances may reduce
A present obligation can be legal or the ultimate cost of mine closure and
constructive in nature. For mining may also affect the timing by extending
companies often there are legal or the existing expected recoveries from
regulatory obligations to restore a the ore body. The estimate needs to be
mine site and to provide ongoing updated at each reporting date.
maintenance of closed mines. A
constructive obligation may arise from Future developments
published policies about clean-up or
from past practices. The IASB is reviewing accounting for
provisions
The obligation to restore the In 2005 the IASB began reviewing
environment or dismantle an asset is the accounting for provisions and an
provided for in full at the time of the exposure draft was issued, which
environmental disturbance. This may proposed changes to both the timing
result in the recognition of additional of recognition and the measurement
amounts or earlier recognition of such of provisions. In 2010 the IASB issued
amounts in IFRS financial statements a limited re-exposure of the 2005
compared to previous GAAP. proposals, which included a focus
When the provision arises on on the measurement of provisions
initial recognition of an asset, the involving services. The project currently
corresponding debit is treated as part is inactive, and the IASB will decide
of the cost of the related asset and is whether or how to progress the
not recognised immediately in profit project when it considers responses
or loss. Changes in the estimate of the to its Agenda Consultation 2011. This
provision generally are adjusted against project, if finalised in its proposed
the carrying amount of the asset. form, will be of particular relevance
to the calculation of mine closure and
rehabilitation provisions.
5 Joint arrangements
The term joint venture is a widely used operational term. However, not all of these
arrangements are joint ventures for accounting purposes. A new standard could
significantly impact the financial statements
Determining whether an Accounting for joint ventures Accounting for joint

arrangement is a joint prior to adoption of IFRS 11 arrangements from 2013
arrangement Accounting is based on whether A new standard issued in 2011
Companies need to review their there is a separate legal entity. An significantly impacts the accounting
arrangements to determine whether accounting policy choice is available for joint arrangements
they should be accounted for as a for jointly controlled entities The IASB issued IFRS 11 in May 2011.
joint arrangement Accounting for joint arrangements The standard is effective for periods
Joint arrangements are a common way (currently referred to as joint ventures) beginning on or after 1 January 2013,
for mining companies to share the risks before the adoption of IFRS 11 Joint with early adoption permitted subject to
and costs of exploration and production Arrangements is governed by IAS 31 some conditions.
activities, and come in a variety of Interests in Joint Ventures. There are
There are two classifications of joint
forms. Within the sector, the term three classifications of joint venture
arrangements under IFRS 11: joint
joint venture is used widely as an all- under IAS 31: jointly controlled entity,
ventures and joint operations. The
encompassing operational expression to jointly controlled asset and jointly
definitions of these IFRS 11 categories
describe shared working arrangements. controlled operation.
differ from the categories in IAS 31.
However, under IFRS there are strict Jointly controlled entities The classification of arrangements
criteria that must be met in order A jointly controlled entity is a joint under IFRS 11 is more judgemental
for joint arrangement accounting to arrangement that is carried out through and the terms of arrangements and
be applied. a separate legal entity. Currently there is the nature of any related agreements
For an arrangement to be a joint an accounting policy choice that applies need to be considered to determine the
arrangement for accounting when accounting for jointly controlled classification of the arrangement for
purposes there must be a contractual entities. A venturer accounts for its accounting purposes.
arrangement that gives joint control. interest using either proportionate
Joint venture
consolidation or the equity method. In
Joint control is not determined by A joint venture is a joint arrangement
KPMG’s 2009 survey The Application
economic interest. Control is based in which the jointly controlling parties
of IFRS: Mining, just over half of the
on the contractual arrangements have rights to the net assets of the
companies applied proportionate
and exists when decisions about arrangement. Joint ventures include
consolidation, with the remainder using
the relevant activities require the only arrangements that are structured
the equity method.
unanimous consent of more than one through a separate vehicle (such as a
party to the arrangement. Companies Jointly controlled assets and jointly separate company). However, not all
need to review their arrangements to controlled operations joint arrangements that are companies
determine whether joint control exists. Jointly controlled assets and jointly will necessarily be joint ventures.
When the company does not have joint controlled operations are joint ventures
The nature and terms of arrangements
control, the arrangement likely will that are not separate legal entities.
need to be reviewed to determine
be accounted for as an investment, Venturers in jointly controlled assets and
the appropriate classification of the
subsidiary or associate if it is operated jointly controlled operations recognise
arrangement. The legal form of the
through a company. the assets and liabilities, or share of
arrangement is only one factor to be
assets and liabilities, that they control,
considered. When the contractual
as well as the costs incurred and income
arrangements and other facts and
received in relation to that arrangement.
circumstances indicate that the
joint venturers have rights to assets cannot undertake its own trade, and
and obligations for liabilities of the can only trade with the parties to the
arrangement, the arrangement will joint arrangement. Related agreements
be a joint operation rather than a and other facts and circumstances also
joint venture. need to be considered.
A joint venturer will account for its A joint operator recognises its own
interest in the joint venture using the assets, liabilities and transactions,
equity method in accordance with including its share of those
IAS 28 (2011) Investments in Associates incurred jointly.
and Joint Ventures.
Joint operation
A joint operation is an arrangement
in which the jointly controlling parties
have rights to assets and obligations for
liabilities relating to the arrangement.
An arrangement that is not structured
through a separate vehicle will be a joint
operation; however, other arrangements
may also fall into this classification
depending on the rights and obligations
of the parties to the arrangement.
One circumstance that could indicate
that an arrangement structured through
a separate legal entity is a joint operation
is if the arrangement is designed so
that the jointly controlled company
Discussion Paper
Extractive Activities
Joint arrangements were not in the scope of
the discussion paper
In commenting on the proposed scope of any
future project by the IASB, some respondents
requested that the IASB consider other
issues that were not specifically covered in
the discussion paper.
These included risk-sharing agreements
such as farm-in/farm-outs and production
sharing agreements. Some respondents
indicated that they consider addressing
these, and other additional areas, to
be a high priority in the absence of
specific guidance in IFRS.
These comments underline the
importance, and accounting
complexities, of risk-sharing
arrangements in the extractive
industries.
6 Stripping costs
Some of the costs of waste and overburden removal are recognised as assets, if certain
criteria are met. Judgement is required to allocate costs appropriately and to determine the
basis for capitalisation
Overburden and waste removal interpretation applies to costs incurred stripping activity asset. The life of the
activities are an essential part of surface on or after the earliest period presented, component determines the period of
mining operations. There was no IFRS we expect that companies in the depreciation; it will differ from the life
guidance that addressed specifically process of converting to IFRS will early of the mine unless the stripping activity
these stripping activities until the issue adopt this interpretation. improves access to the whole of the
of IFRIC 20 Stripping Costs in the remaining ore body. The identification
Capitalisation of production stripping
Production Phase of a Surface Mine in of the component is likely to require
costs required if certain criteria are
October 2011. significant judgement.
met
IFRIC 20 deals with production phase There are two benefits of production Allocation of costs between
stripping in surface mining operations. stripping activity: inventory and the stripping activity
For some mines a significant accounting asset
●● inventory produced; and
issue can be the determination of When the costs of the stripping
whether costs are development or ●● improved access to ore for future activity asset vs inventory produced
production stripping costs. Determining production. are not separately identifiable, costs
when production has commenced are allocated between the two based
To the extent that benefits are realised
is complex, and development may on a relevant production method. An
in the form of inventory produced,
continue once production has begun. example may be actual vs expected
the related costs are accounted for in
volume of waste extracted for a
accordance with IAS 2 Inventories.
Pre-production stripping given volume of ore.
Production stripping costs that improve
costs
access to ore to be mined in the future
Generally capitalised are recognised as a non-current asset (a
There is no specific IFRS guidance on ‘stripping activity asset’) if, and only if, all
accounting for development phase of the following criteria are met:
stripping costs. Therefore, a company ●● it is probable that the future economic
develops an accounting policy under the benefit will flow to the company;
hierarchy for the selection of accounting
policies under IFRS. The removal of ●● the company can identify the
waste materials to access mineral component of the ore body to which
deposits is referred to as pre-production access has been improved; and
stripping. During the development of ●● the costs related to the stripping
a mine (before production begins), activity associated with that
pre-production stripping costs generally component can be measured reliably.
are capitalised and amortised over the
productive life of the mine using the The stripping activity asset is accounted
unit-of-production method. These costs for as part of an existing asset to which
may be capitalised when it is probable it relates. Therefore, its classification
that future economic benefits will flow as property, plant and equipment or
to the company. as an intangible asset depends on the
classification of the existing asset.
Production stripping costs Identification of the component of
the ore body is key to the accounting
A new interpretation applicable from
As well as being a condition for
2013
capitalisation, identification of a
IFRIC 20 is applicable for annual periods
component of the ore body also is
starting on or after 1 January 2013.
important for the calculation of the
Early adoption is permitted, and as the
depreciation/amortisation of the
7 Reserves and resources reporting
There is no specific IFRS reporting requirement for reserves, although many mining
companies include a commentary in the accounting policies or critical estimates and
judgements notes, or elsewhere in the annual report
Mining reserve estimates are critical meaningful comparison between the mine closure and environmental
information in the evaluation of mining companies would be difficult without in- rehabilitation provisions.
companies, and reserves disclosure depth analysis of the many assumptions
●● Impairment calculations include
is an important component of annual inherent in the core disclosures.
assumptions for reserves and
reports in the sector. The purpose of
resources. Downward revisions in
reserves reporting is to make available Impact of reserves estimates reserves and resources estimates
information about mining reserves and
resources controlled by companies
on financial statement often represent an indicator
balances of impairment.
in the sector. This is vital in assessing
their current performance and future ●● Reserves and resources are a key input
While the reporting of reserves data
prospects. Despite their importance to fair value calculations in accounting
is important in its own right, reserves
to both the company and the financial for a business combination.
measures are also used in deriving a
statements, there are no explicit
number of accounting estimates. ●● Assumptions about future profit
requirements for the disclosure of
potential based on reserves and
reserves information in IFRS. ●● In our experience, depreciation and
resources estimates may be a key
amortisation calculations usually
basis for the recognition of deferred
Disclosures are based on the unit-of-production
tax assets arising from unused
method and the volume of reserves
In the absence of specific guidance, tax losses.
(and sometimes resources) used in
mining companies tend to refer to other the calculation affects the calculation Because of the impact of reserves and
requirements, such as securities laws of the associated depreciation charge. resources information in the financial
and listed company rules in the US, statements, mining companies typically
Canada, Australia and the UK. The nature
●● Reserves and resources estimates
include some information about
of reserves estimates is such that, even are a key factor in determining the
reserves and resources in the annual
if all companies provided disclosure economic life of a mine project and
report.
based on a single classification, therefore impact on the calculation of

Significant disclosure requirements – a current value measurement of commodity price. Respondents who
proposed reserves by major geographical commented expressed a preference
The project team’s proposals relating region if historical cost is used to for a historical price assumption to
to reserves reporting included the measure E&E assets. remove subjectivity.
following.
Reserves definition – respondents’ Disclosure proposals – respondents’
●● Use of mineral and resource views views
definitions established by the Most respondents agreed with While a majority (63%) of respondents
Committee for Mineral Reserves recommendations that industry-based generally agreed with the disclosure
International Reporting Standards definitions of reserves and resources objectives, almost all respondents
(the CRIRSCO Template). be used in any future IFRS to set expressed significant concern
disclosures and complement the about the level of granularity of the
The discussion paper noted that
accounting requirements. Half (51% of disclosures proposed. Concern
the CRIRSCO Template forms the
those who responded to this question) also was raised over whether the
basis of market regulator disclosure
also agreed with the use of the disclosure of reserves quantities
requirements in most jurisdictions
CRIRSCO Template. Concerns raised should be subject to audit.
that have formalised reserve
related to the approach for incorporating
disclosure requirements, excluding Some of the proposed disclosures differ
the definition into any future IFRS.
in the US. from those currently required by some
Of those who disagreed with the market regulators. Also, additional
●● Significant disclosure requirements
use of the CRIRSCO Template, information may be required in the
relating to reserves and resources,
38% proposed the development of future if such disclosures are mandated.
including:
principles-based definitions. Other Therefore, this area is likely to require
– quantities of proved reserves and respondents proposed alternative significant management focus as
proved plus probable reserves, definitions such as those applied practice and requirements develop.
with reserve quantities presented by the US Securities and Exchange
The importance of reserves
separately by commodity and by Commission.
reporting and the lack of current
material geographical area;
Concern also was raised over the guidance led some respondents to
– the main assumptions used in project team’s proposal that reserves support development of disclosure
estimating reserve quantities, estimates should be prepared using requirements separately, and more
and a sensitivity analysis; and a market participant’s assumption of urgently, than accounting requirements.
8 Financial instruments
The conversion process needs to include a review of the existence, classification and
measurement of financial instruments. Future changes in the accounting for these
instruments are expected
Accounting for financial instruments Derivatives generally are measured at proposing significant changes to the
under IFRS can be complex, and the fair value, with changes in those values current hedge accounting requirements.
accounting and disclosure requirements recognised in profit or loss. This can lead For example, the proposals would
may be significantly different from to volatility in the financial statements change the process for assessing hedge
previous GAAP. Therefore, a thorough as the fair value of derivatives changes effectiveness and expand the range of
review of the existence, classification in response to changes in commodity instruments that can be designated as
and measurement of financial prices or interest rates, for example. hedging instruments.
instruments is an important part of any
IFRS conversion process. Embedded derivatives Own use exemption
This publication does not deal with Certain types of mining contracts Contracts to buy or sell non-financial
the details of financial instruments also commonly contain embedded items, for example sales of gold,
accounting, which are extensive. This derivatives that may need to be may be within the scope of IAS 39.
section focuses on accounting for accounted for separately. For example, However, contracts for physical receipt
derivative instruments, and contracts to sales agreements commonly provide for or delivery of a non-financial item
buy and sell non-financial items, which provisional pricing of sales at the time in accordance with the company’s
are of particular relevance to many of shipment, with the final price being expected purchase, sale or usage
companies in the mining sector. linked to an underlying price index, such requirements generally are excluded
as the price of the commodity on the from the scope of the financial
Current and future London Metal Exchange. The pricing instruments standards. Contracts that
accounting requirements element of the sales contract may meet qualify for this ‘own use exemption’ are
the criteria for an embedded derivative accounted for as executory contracts.
Currently the recognition and in some circumstances. The requirements and applicability
measurement requirements for financial of the own use exemption should be
instruments are covered by IAS 39
Financial Instruments: Recognition
Hedge accounting considered carefully.
and Measurement. The IASB has an While the term ‘hedging’ is a generic This exemption is particularly useful
ongoing project to improve accounting term to describe the management for mining companies as contracts
for financial instruments and has issued of risks, ‘hedge accounting’ refers for future sales of minerals may
the first chapters of IFRS 9 Financial to hedge relationships that meet the otherwise require recognition in
Instruments, which will supersede the criteria for, and are accounted for as, the financial statements.
requirements of IAS 39 and is effective hedges in accordance with IAS 39.
9
from 1 January 2015. IFRS 9 includes Not all hedge transactions will be
different measurement categories for accounted for as accounting hedges.
financial assets. The IASB continues Hedge accounting is voluntary and the
to work on elements of the financial decision to apply hedge accounting is
instruments project, most notably made on a transaction-by-transaction
hedging and impairment. basis. Hedge accounting for derivatives
mitigates income statement volatility
Derivatives by either adjustment to the hedged
item or recognition of gains or losses
Mining companies face significant on derivatives directly in equity,
commodity price risk, as well as foreign but is permitted only when strict
exchange and interest rate exposures. documentation and effectiveness
Derivatives are used frequently in the requirements are met.
mining sector to manage these risks
and provide more certainty over the As part of its project to replace IAS 39,
future cash flows. the IASB issued Exposure Draft
Hedge Accounting in December 2010
9 First-time adoption of IFRS
A number of exemptions from retrospective application of IFRS are available
Without any specific reliefs, a company at the date of transition based on a ●● an earlier date chosen by the
converting to IFRS would have to measurement of fair value or revalued company.
recreate its accounting history as if amount. A previous GAAP revaluation
currently-effective IFRS had always can be used as deemed cost if it is Mine closure and
been applied. That process would clearly broadly comparable to either fair
be difficult, time consuming and in value or IFRS. The option to measure
environmental provisions
some cases impracticable. at fair value is available as long as it An optional exemption gives relief from
can be measured reliably at the date the fully retrospective calculation of
The requirements for the first-time
of transition. provisions to restore the environment
adoption of IFRS are covered by IFRS 1
First-time Adoption of International For mine properties and E&E assets and dismantle assets (see section 4).
Financial Reporting Standards. That classified as property, plant and Without the benefit of this exemption,
standard aims to ensure that the first equipment, the measurement of fair a first-time adopter would be required
set of IFRS financial statements provide value may be complex and may require to recalculate retrospectively the effect
a suitable starting point for subsequent technical input to relate the fair value of each change to the provision that
accounting under IFRS, without the calculation to the relevant reserves and occurred prior to the date of transition,
costs of transition exceeding the resources. However, this is a very useful along with the related impact on
benefits. IFRS 1 includes a number exemption to consider for all assets, as depreciation.
of exemptions, some mandatory and this option can be taken for individual If the exemption is taken, then the
some optional, which will need to be items of property, plant and equipment, amount of the provision capitalised in
considered in planning conversion. and need not be applied to all items in property, plant and equipment in the
a class. Revaluing items of property, opening balance sheet is calculated by
Some of the main areas for
plant and equipment at deemed cost applying the following steps.
consideration for mining companies on
on transition is likely to increase the
conversion are discussed in this section. Calculate the provision at the date of
carrying amount of these assets
●●
For a more detailed discussion of the transition, discounted using a current

and increase depreciation charges in
requirements on first-time adoption, we market-based discount rate.
future years.
recommend that you refer to KPMG’s
publication IFRS Handbook: First-time A similar exemption for intangible
●● Discount that provision back to the
adoption of IFRS. assets exists, but is only available when date that the obligation first arose
there is an active market for the asset. using an estimate of the historic risk-
adjusted discount rate.
Deemed cost exemption
for property, plant and Borrowing costs ●● Depreciate the resulting present
value from the date that the obligation
equipment Borrowing costs that are directly first arose to the date of transition.
attributable to the acquisition or
To determine the carrying amount of construction of a ‘qualifying asset’
assets in the opening IFRS balance form part of the cost of that asset
Stripping costs
sheet, the cost of each item needs to under IAS 23 Borrowing Costs. A A first-time adopter can elect to
be recalculated at the date of initial qualifying asset is one that necessarily account for production stripping costs
recognition and rolled forward to the takes a substantial period of time to in a surface mine (see section 6) under
date of transition. When the relevant be made ready for its intended use. IFRIC 20 prospectively from the start
information has not been collected Mine property assets are likely to meet of the earliest period presented. In
previously, the process of collation and this definition. this case, any existing assets related
estimation of this information could be
IFRS 1 gives first-time adopters to production stripping activity will be
costly. There is an optional exemption in
the option of applying IAS 23 only written off to retained earnings if there
IFRS 1 that allows companies to avoid
to qualifying assets for which the is no related remaining identifiable
full retrospective restatement of the
commencement date of capitalisation is component of the ore body. Any
cost of property, plant and equipment.
on or after: other existing stripping assets will be
This ‘deemed cost exemption’ allows
reclassified as part of an existing asset
a first-time adopter to measure an the later of 1 January 2009 and the
●●
to which the stripping relates, and will
item of property, plant and equipment date of transition; or
be depreciated over the remaining life of

the identified component.
Financial instruments
There are a number of specific provisions
and optional exemptions relating to
financial instruments. The provisions of
IFRS 1 should be considered in detail
as part of the process of assessing
the impact of financial instruments
accounting under IFRS on the financial
statements. In particular, in order to
apply hedge accounting from the date
of transition, the requirements of IFRS
will require careful consideration and
planning well in advance of the date of
transition. IFRS 1 prohibits retrospective
designation of derivatives and other
instruments as hedges. Hedging
relationships will need to be assessed
and documented in accordance with
IFRS requirements before the date
of transition in order to apply hedge
accounting from that date.
Information technology and systems considerations

A major effect of converting to IFRS will ●● the level of customisation, as the differences into technical system
be the increased burden throughout more customised the system, specifications.
the mining organisation of capturing, the more effort and planning the
One of the difficulties that mining
analysing and reporting new data to conversion process will likely take.
companies may face in creating
comply with IFRS requirements. Making
technical specifications is to understand
strategic and tactical decisions relating From accounting gaps to the detailed end-to-end flow of
to information systems and supporting
processes early in the project helps limit
information sources information from the source systems,
such as mine operational sub-ledgers,
unnecessary costs and risks arising The foundation of the project, as to the general ledger and further
from possible duplication of effort or described earlier, is to understand to the consolidation and reporting
changes in approach at a later stage. the local GAAP to IFRS accounting systems. The simplified diagram below
Much depends on factors such as: differences and the effects of those outlines a process that organisations
differences. That initial analysis needs can adopt to identify the impact on
●● the type of enterprise system and to be followed by determining the effect information systems.
whether the vendor offers IFRS of those accounting gaps on internal
specific solutions; information systems and internal
●● whether the system has been kept controls. What mining companies need
current, as older versions first may to determine is which systems will need
need updating; and to change and translate accounting
How to identify the impact on information systems

There are many ways in which information systems may be affected, from the initiation of transactions through to the
generation of financial reports. The following table shows some areas in which information systems change might be required
under IFRS depending upon facts and circumstances.
Change Action
New data requirements
New accounting disclosure and recognition requirements Modify:
may result in more detailed information, new types of data • general ledger and other reporting systems to capture
and new fields; and information may need to be calculated new or changed data
on a different basis. • work procedure documents.
Changes to the chart of accounts

There will almost always be a change to the chart of Create new accounts and delete accounts that are no longer
accounts due to reclassifications and additional reporting required.
criteria.
Reconfiguration of existing systems

Existing systems may have built-in capabilities for specific Reconfigure existing software to enable accounting under
IFRS changes, particularly the larger enterprise resource IFRS (and parallel local GAAP, if required).
planning (ERP) systems and high-end general ledger
packages.
Modifications to existing systems

New reports and calculations are required to Make amendments such as:
accommodate IFRS. • new or changed calculations
Spreadsheets and models used by management as an • new or changed reports
integral part of the financial reporting process should • new models.
be included when considering the required systems
modifications.
New systems interface and mapping changes

When previous financial reporting standards did not Implement software in the form of a new software
require the use of a system or when the existing system development project or select a package solution.
is inadequate for IFRS reporting, it may be necessary to Interfaces may be affected by:
implement new software. • modifications made to existing systems
When introducing new source systems and • the need to collect new data
decommissioning old systems, interfaces may need to
• the timing and frequency of data transfer requirements.
be changed or developed and there may be changes to
existing mapping tables to the financial system. When
separate reporting tools are used to generate the financial
statements, mapping these tools will require updating to
reflect changes in the chart of accounts.
Change Action
Consolidation of entities
Under IFRS, there is the potential for changes to the Update consolidation systems and models to account for
number and type of entities that need to be included in changes in consolidated entities.
the group consolidated financial statements. For example,
the application of the concept of ‘control’ may be different
under IFRS (based on IFRS 10 Consolidated Financial
Statements from periods beginning on/after 1 January
2013) and previous GAAP.
Reporting packages
Reporting packages may need to be modified to: Modify reporting packages and the accounting systems
• gather additional disclosures in the information from sites used by subsidiaries and branches to provide financial
or subsidiaries operating on a standard general ledger information. Also communicate new requirements to
package; or operators of joint arrangements.
• collect information from subsidiaries that use different
financial accounting packages.
Financial reporting tools

Reporting tools can be used to: Modify:
• perform the consolidation and prepare the financial • reporting tools used by subsidiaries and sites to provide
statements based on data transferred from the general financial information
ledger; or • mappings and interfaces from the general ledger
• prepare only the financial statements based on the • consolidation systems based on additional requirements
receipt of consolidated information from the general such as segment reporting.
ledger.
Mining accounting differences and respective system issues

The following table outlines some of the accounting differences that we have noted earlier, together with potential system
impacts.
Accounting differences Potential systems and process impact

E&E and development • Interaction between technical E&E processes and accounting systems to clearly identify
costs milestones such as licence acquisition and determination of commercial reserves.
• Impact on master data settings to reflect changes in E&E capitalisation policies.
• Impact on general capitalisation process and system settings based on differences in
eligible costs for capitalisation (e.g. unsuccessful exploration, seismic, pre-feasibility costs).
• Impact on master data settings and structure based on the component approach to
depreciation.
• Allocation of assets to cash-generating units and depreciation units of account.
Mine closure and • Impact on the interface with E&E and development assets to reflect work progress and
environmental changes in estimates as extraction occurs.
provisions • Accounting systems need to identify discount rates specific to each liability and this may
lead to changes in the sub-ledger as well as the general ledger.
Joint arrangements • Clear identification of accounting differences between information provided by joint
arrangement operators and IFRS principles will be required and could lead to changes in
reporting packages and sub-ledgers used.
• Additional system interfaces may be required to adjust for accounting policy differences for
the compilation of consolidated financial statements.
Stripping costs • Impact on posting specifications of the fixed assets sub-system to include production
stripping activity assets as part of an existing asset.
• Impact on master data settings and structure based on differences in the components
approach to deferred stripping.
• Impact on processes for calculating asset additions.
• Interaction with mine management systems to track the component of the ore body.
• Allocation of stripping activity assets to cash-generating units and establishment of
depreciation policies.
Parallel reporting: Timing the changeover from local GAAP to IFRS reporting
Conversion from local GAAP to IFRS will require parallel accounting for a certain period of time. At a minimum, this will happen
for one year as local GAAP continues to be reported, but IFRS comparatives are prepared prior to the go-live date of IFRS.
Parallel reporting may be created either in real-time collection of information through the accounting source systems to the
general ledger or through ‘top-side’ adjustments posted as an overlay to the local GAAP reporting system.
The manner and timing of processing information for the comparative periods in real time or through top-side adjustments will
be based on a number of considerations.
Parallel accounting option in Effect Considerations

comparative year
Parallel accounting through top-side • No real-time adjustments to • Less risky for ongoing local
adjustments systems and processes will be GAAP reporting requirements in
required for comparative period. comparative year.
• Local GAAP reporting will flow • Available for all, but more typical
through sub-systems to the general when there is a lower volume of
ledger, i.e. business as usual. transactions to consider.
• Comparative periods will need to be • More applicable to small/less
recast in accordance with IFRS, but complex organisations or when few
can be achieved off-line. changes are required.
• Migration of local GAAP to IFRS
happens on first day of the year in
which IFRS reporting commences.
Real-time parallel accounting • Consideration needed for ’leading • Real-time reporting of two GAAPs in
ledger’ in comparative year being the comparative year has benefits,
local GAAP or IFRS, i.e. which GAAP but puts more stress on the
will management use to run the finance team.
business. • Typically used when tracking two
• If leading ledger is IFRS in sets of numbers for large volume
comparative year, then conversion of transactions and will make
back to local standards will be systemisation of comparative
necessary for the usual reporting year essential.
timetable and requirements. • More applicable for large/complex
• Changes to systems and organisations with many changes.
information may continue to be • Strict control on system changes
needed in the comparative year if will need to be maintained over this
the IFRS accounting options have phased changeover process.
not been fully established.
• Migration to IFRS ledgers needed
prior to first day of the year in which
IFRS reporting commences.
Most major ERP systems (e.g. SAP®, Oracle®, Peoplesoft®) are able to handle parallel accounting in their accounting systems.
The two common solutions implemented are the Account solution or the Ledger solution.
Depending on the release of the respective ERP systems, one or both options are available for the general ledger solution.
Harmonisation of internal and external data and systems, which therefore will need to change to
align with IFRS. One key difference that may remain after
reporting
transitioning to IFRS is the reporting in line with joint venture
Mining companies should consider the impact of IFRS agreements.
changes on data warehouses and relevant aspects of internal The following diagram represents the possible internal
reporting. In many companies, internal reporting is performed reporting areas that may be affected by changing systems to
on a basis similar to external reporting, using the same accommodate the new IFRS reporting requirements.
The process of aligning internal and external reporting

typically will involve the following.
●● When mappings have changed from the source systems to
the general ledger, mappings to the management reporting
systems and the data warehouses also should be changed.
●● When data has been extracted from the source systems
and manipulated by models to create IFRS adjustments
that are processed manually through the general ledger, the
impact of these adjustments on internal reporting should be
considered carefully.
●● Alterations to calculations and the addition of new data
in source systems as well as new timing of data feeds
could have an effect on key ratios and percentages in
internal reports, which may need to be redeveloped to
accommodate them.
People: Knowledge transfer and change management

When your company reports for the first time under IFRS, the preparation of those financial statements
will require IFRS knowledge to have been successfully transferred to the financial reporting team.
Timely and effective knowledge transfer is an essential part of a successful and efficient IFRS
conversion project.
The impact on a company’s people into the long term across the whole ●● Many companies manage their
during and after an IFRS conversion organisation. Distinguishing between training through a series of site visits;
ranges from an accounts payable clerk different audiences and the nature of typically partnerships of one member
coding invoices differently under IFRS to the content is key to successful training. of the core central team along with
Audit Committee approval of disclosures The following are some useful matters a second technical expert, often an
for IFRS reporting. There is a broad to consider. external advisor.
spectrum of people-related issues, all
●● Training tends to be more successful ●● Some companies use training as
of which require an estimation of the
when tailored to the specific needs of an opportunity to share their data
changes that are needed under the IFRS
the company. Few companies claim collection process for group reporting
reporting regime.
significant benefit from external non- at the same time.
The success of the conversion project tailored training courses.
Even with the best planning and
will depend on the people involved.
●● Geographically disparate companies training possible, it is critical that an
There needs to be an emphasis on
are considering web-based training as appropriate support structure is in place
communications, engagement, training,
a cost- and time-efficient method of so that the business units implement
support, and senior sponsorship, all of
disseminating knowledge. the desired conversion plans properly.
which are part of change management.
IFRS knowledge only really becomes
●● More complex areas such as
Training should not be underestimated embedded in the business when the
accounting for exploration
and companies often do not fully stakeholders have the opportunity to
expenditure or mine closure
appreciate levels of investment and actually prepare and work with real
provisions tend to be best conveyed
resource involved in training. Although data on an IFRS basis. We recommend
through ‘workshop’ training
most conversions are driven by a central building dry runs into the conversion
approaches in which company
team, you ultimately need to ensure process at key milestones to test
specific issues can be tackled.
the conversion project is not dependent the level of understanding among
on key individuals and is sustainable finance staff.
Business and reporting

One of the challenges of IFRS convergence stems from the number of stakeholders that have a
vested interest in the financial performance of the company. Your project will have to deal with a
large number of internal and external stakeholders so as to manage one fundamental issue – the
operational performance stays the same but the ’scoreboard‘ of the financial statements gives a
different result under IFRS.
The measurement of operational into the IFRS project’s objectives to help and options are being taken by others.
performance cuts across all parts ensure their successful achievement. Investors and analysts may also want to
of an organisation and affects the be able to look across mining companies
A common failure of conversion projects
internal business drivers and external and be aware of the differences, so as
is the lack of a communications strategy
perceptions of the company. The to factor those differences into their
through which companies ensure all key
assessment of who those affected various buy/sell/hold recommendations.
stakeholder groups are fully informed
groups are, and when the appropriate
of the project’s progress. At a minimum Management will need to assess its
time for communications will be,
this includes the quarterly and annual mining peer group, but the manner
is a key component of an IFRS
disclosures in the financial reports, in which this is achieved may vary
conversion project.
but may need a much broader ranging depending on the working relationship
communications strategy. with its peers. Past practice has
Stakeholder analysis and seen mining sector groups form that
communications Audit Committee and Board informally share updates on accounting
interpretations, practical issues and
A thorough review of the internal and of Directors considerations choices being made throughout the
external stakeholders is an essential IFRS conversion project, as well as more
The Audit Committee and Board of
first step. Certain less obvious internal formal discussions occurring through
Directors should be actively informed
stakeholder groups may be engaged the facilitation of mining industry
and included in the process so that
only in the conversion process at a late bodies. Additionally, as many mining
they are appropriately engaged in the
stage, but the awareness of when to companies have been reporting under
conversion process and do not become
engage those groups is necessary. IFRS for a number of years, publications
a bottleneck for certain key decisions.
For example, most mining companies that analyse the results of those
All IFRS conversions should ensure that
have union representatives who will companies may also be of use.
Board and Audit Committee meetings
need to be involved for changes to
are acknowledged on the project
compensation schemes if, for example,
bonuses are based on earnings per
plan as these meetings can drive key Other areas of IFRS risk to
deliverables and provide incentive for mitigate
share measures that will alter under
timely delivery.
IFRS. However, there is little point
A quality IFRS conversion enables an
engaging in detailed accounting Other senior management groups
accounting process involving change
discussions with the unions or human also need to have tailored and periodic
management and complexity to be as
resource (HR) groups early on in the training to suit their knowledge
risk-free as possible. It is essential that
conversion process. requirements so as to not overwhelm
the company does not miss deadlines,
them with accounting theory on IFRS.
In a similar context, other external or issue reports that include errors.
Clearly there is a balance to be struck
stakeholders should be properly As such, the stakes are high when
between the accounting understanding
identified and communicated with it comes to IFRS conversions and
required and the responsibilities of the
throughout the IFRS conversion. mining companies are no different
group undergoing the training.
Examples include groups such as in this regard. There are a number
tax authorities, regulators, industry of areas to consider, but two main
analysts and the financial media. Every Monitoring peer group ones relate to the use of the external
identified group needs to be factored The mining community often uses auditor and the internal control
into the timing of when and how to industry benchmarks and peer group certification requirements.
present changes in operational reporting comparisons. As such, most mining The close co-operation and use of
because of IFRS. Furthermore, for companies in a given geography will the company’s auditors should be an
internal stakeholders, project related want to know what their peers are doing integral part of the IFRS governance
deliverables need to be incorporated as it relates to IFRS and what choices process of the project. There needs
to be explicit acknowledgement on the close processes are integral and may offer more global transparency and
part of the company for frequent auditor companies need to be aware of the ease access to foreign capital markets
involvement. Clear expectations should impact of any manual work-arounds and investments, and that may help
be set around all key deliverables, used. Documentation of new policies, facilitate cross-border acquisitions,
including timely IFRS technical partner procedures and the underlying internal ventures and spin-offs. For example,
involvement. The Audit Committee controls will all need to be reflected as and as a final thought, by converting to
also needs to ensure the external part of the IFRS process. IFRS, mining companies should be able
audit teams have reviewed changes to present their financial reports to a
to accounting policies alongside the Benefits of IFRS wider capital community. If this lowers
approval by Audit Committee. the lending rate to that company by,
While the majority of this publication say, a quarter of a percentage point for
Proper planning for new and enhanced has focused on the micro-based risks the annuity of the instrument, then the
internal controls and certification and issues associated with IFRS and benefits are clearly measurable despite
process as part of your IFRS conversion IFRS conversions, senior management the short-term pain of the finance group
should be considered. Assessment of should not lose sight of the macro- through the IFRS conversion process.
internal control design for accounting based benefits to IFRS conversion. IFRS
policy management as well as financial
KPMG: An experienced team, a global network

KPMG’s Energy & Natural and meet the myriad challenges of the have Mining Centers in Melbourne,
digital economy. Brisbane, Perth, Rio de Janeiro,
Resources practice Santiago, Toronto, Vancouver, Beijing,
For more information, visit kpmg.com
KPMG’s Global Energy and Natural Moscow, Johannesburg, London,
and kpmgglobalenergyinstitute.com.
Resources (ENR) practice offers Denver and Mumbai. These centres
customised, industry-tailored Audit, Tax support mining companies around the
and Advisory services that can lead to KPMG’s Mining practice world, helping them to anticipate and
comprehensive value-added assistance KPMG member firms’ mining clients meet their business challenges.
for your most pressing business operate in many countries and have
requirements. a diverse range of needs. In each of Your conversion to IFRS
KPMG’s Global ENR practice is these countries, we have local practices
that understand the mining industry’s As a global network of member firms
dedicated to supporting all organisations with experience in more than 1,500
operating in the Mining, Oil & Gas, and challenges, regulatory requirements and
preferred practices. IFRS convergence projects around
Power & Utilities industries globally the world, we can help ensure that
in understanding industry trends and It is this local knowledge, supported and the issues are identified early, and can
business issues. Our professionals, coordinated through KPMG’s regional share leading practices to help avoid the
working in member firms around the Mining Centres, which helps to ensure many pitfalls of such projects. KPMG
world, offer skills, insights and knowledge that our clients receive high-quality firms have extensive experience and
based on substantial experience working services and the best available advice the capabilities needed to support
with ENR organisations to understand tailored to their specific challenges, you through your IFRS assessment
the issues and help deliver the services conditions, regulations and markets. and conversion process. Our global
needed for companies to succeed We offer global connectivity through network of specialists can advise you
wherever they compete in the world. our 13 dedicated Mining Centres in key on your IFRS conversion process,
KPMG’s Global ENR practice, through locations around the world, working including training company personnel
its global network of highly qualified together as one global network. They and transitioning financial reporting
professionals in the Americas, Europe, are a direct response to the rapidly processes. We are committed to
the Middle East, Africa and Asia Pacific, evolving mining sector and the resultant providing a uniform approach to deliver
can help you reduce costs, mitigate risk, challenges that industry players face. consistent, high-quality services for
improve controls of a complex value Located in or near areas that traditionally clients across geographies.
chain, protect intellectual property, have high levels of mining activity, we
Contact us
Global contacts Country contacts
Global Chairman, Energy and Australia China
Natural Resources (ENR) Helen Cook Melvin Guen
Michiel Soeting T: +61 8 9263 7342 T: +86 1085087019
T: +44 20 7694 3052 E: hcook@kpmg.com.au E: melvin.guen@kpmg.com
E: michiel.soeting@kpmg.co.uk
Brazil India
Global Head of Audit, ENR Andre Castello Branco Hiranyava Bhadra
Jimmy Daboo T: +55 (21) 3515 9468 T: +91 22 3983 6000
T: +44 20 7311 8350 E: abranco@kpmg.com.br E: hbhadra@kpmg.com
E: jimmy.daboo@kpmg.co.uk
Canada South Africa
Global Head of Audit, Mining
Lee Hodgkinson Lee Hodgkinson Ian Kramer
T: +1 416 777 3414 T: +1 416 777 3414 T: +27 11 647 6646
E: lhodgkinson@kpmg.ca E: lhodgkinson@kpmg.ca E: ian.kramer@kpmg.co.za
Global Head of Mining CIS United Kingdom

Wayne Jansen Lydia Petrashova Richard Sharman
T: +27 11 647 7201 T: +74959372975 x 12640 T: +44 20 73118228
E: waynejansen@kpmg.co.za E: lydiapetrashova@kpmg.ru E: richard.mas.sharman@kpmg.co.uk
Chile United States

Benedicto Vasquez Roy Hinkamper
T: +56 2 798 1206 T: +1 314 244 4061
E: benedictovasquez@kpmg.com E: rhinkamper@kpmg.com
Other KPMG publications
We have a range of IFRS publications that can assist you further, including:
●● The Application of IFRS: Mining
●● First Impressions: Production stripping costs
●● New on the Horizon: Extractive Activities
●● Insights into IFRS
●● IFRS compared to US GAAP
●● IFRS Handbook: First-time adoption of IFRS
●● New on the Horizon publications that discuss consultation papers
●● First Impressions publications that discuss new pronouncements
●● Illustrative financial statements for annual and interim periods
●● Disclosure checklist.
Acknowledgements
We would like to acknowledge the authors and reviewers of this publication, including:
Pamela Taylor KPMG International Standards Group (part of KPMG IFRG Limited)
Daniel Camilleri KPMG in Italy
Riaan Davel KPMG in South Africa
Lee Hodgkinson KPMG in Canada
Anthony Jones KPMG in Australia
Lise Meyer KPMG in South Africa
Nicole Perry KPMG in Australia
Chris Sargent KPMG in Australia
kpmg.com/ifrs
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual
or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough examination of the particular situation.
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent
firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to
obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Printed in the UK
Publication name: Impact of IFRS: Mining
Publication number: 314693
Publication date: January 2012

Ifr Mining

Uploaded by

Copyright:

Available Formats

You might also like

Ifr Mining

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ifr Mining

Uploaded by

Copyright:

Available Formats

ENERGY & NATURAL RESOURCES

Accounting for mining activities This publication looks at some of the

Jimmy Daboo Wayne Jansen

Overview of the IFRS conversion process

Identify GAAP differences Identify information ‘gaps’ for

Accounting and reporting issues

1 Exploration and evaluation (E&E) expenditure 6 Stripping costs

2 Development assets 7 Reserves and resources reporting

3 Impairment of non-financial assets 8 Financial instruments

4 Mine closure and environmental provisions 9 First-time adoption of IFRS

1 Exploration and evaluation (E&E) expenditure

Discussion Paper Extractive Activities

3 Impairment of non-financial assets

Impairment testing requirements are relaxed for E&E assets

E&E assets Impairment testing calculations ●● Market value has declined

Discussion Paper Extractive Activities

from the synergies of the related

4 Mine closure and environmental provisions

IFRS may result in earlier recognition of provisions than previous GAAP

Mining companies often are exposed Measurement

Determining whether an Accounting for joint ventures Accounting for joint

7 Reserves and resources reporting

Discussion Paper Extractive Activities

9 First-time adoption of IFRS

A number of exemptions from retrospective application of IFRS are available

For a more detailed discussion of the transition, discounted using a current

be depreciated over the remaining life of

Information technology and systems considerations

How to identify the impact on information systems

Changes to the chart of accounts

Reconfiguration of existing systems

Modifications to existing systems

New systems interface and mapping changes

Financial reporting tools

Mining accounting differences and respective system issues

Accounting differences Potential systems and process impact

Parallel accounting option in Effect Considerations

The process of aligning internal and external reporting

People: Knowledge transfer and change management

Business and reporting

KPMG: An experienced team, a global network

Global Head of Mining CIS United Kingdom

Chile United States

Publication name: Impact of IFRS: Mining

Publication number: 314693

Publication date: January 2012

You might also like