Australia

Details

  • Service: Audit, Accounting Advisory Services, International Financial Reporting Standards (IFRS)
  • Industry: Energy & Natural Resources, Mining
  • Type: Press release
  • Date: 2/11/2011

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New IFRS interpretation impacts production stripping costs for mining sector 

2 November 2011 - The International Accounting Standards Board recently published new requirements for accounting for production stripping costs incurred in surface mining activity.

The International Accounting Standards Board recently published new requirements for accounting for production stripping costs incurred in surface mining activity. Under the Interpretation, such costs will be capitalised and recognised in profit or loss over the life of the ‘component’ of ore body to which the costs relate, if certain criteria are met.

 

Currently accounting practice is mixed. Research performed by KPMG International Standards Group on the most recent financial statements of 26 mining companies revealed that just over half (15) disclosed their accounting policy for production stripping costs. Of these 15 companies, just over a third expensed such costs as incurred for some or all of their mines.
 
Wayne Jansen, Global Head of KPMG’s Mining practice, said: “This means not only a change in accounting policy for these companies, but a real need to look at the processes required to capture the relevant data at the mine level.”

 

However, this does not mean that companies already deferring production stripping costs can continue as they were under the new requirements. Jansen explained: “There are two areas to consider. First, the Interpretation specifies the costs to be capitalised, which may differ from current practice in some cases. Second, it requires companies to ensure that those costs are recognised in profit or loss over a period that in some cases may well be shorter than the period currently used. All in all, I think that only a handful of mining companies will be able to conclude that their current accounting is completely in line with the Interpretation.”

 

In Australia, many companies will need to significantly change the processes and systems that they currently use to track mine waste at a site level. New policies may require implementation, and mine personnel may require education on the proposed changes and the practical impact on operations. Companies will also need to consider how they communicate this impact to the broader investor community, and articulate the changes to key stakeholders.
 
The Interpretation is applicable for accounting periods beginning on or after 1 January 2013, and will be applied from the beginning of the earliest period presented.

Media enquiries

Kristin Silva

Head of Public Affairs

KPMG in Australia

+61 2 9335 8562, 0411 110 953

ksilva@kpmg.com.au

Avilyn Tan

Communications Manager

KPMG in Australia

+ 61 3 8626 0943, 0428 435 095

avilyntan@kpmg.com.au

 

International Financial Reporting Standards

KPMG helps organisations adopt IFRS, providing practical support to smooth the transition.

IFRS Briefing Sheet 207: Stripping Costs: Surface mine production phase

IFRS Briefing Sheet: Issue 207
This IFRS Briefing Sheet summarises Draft Interpretation DI/2010/1 Stripping Costs in the Production Phase of a Surface Mine.