Stripping activity can be a significant part of the cost base for many open pit mines. Allocating the cost of this activity between development and cost of sales has long been a matter of debate. In 2005 the US Financial Accounting Standards Board (FASB) came down on the side of allocating all production stripping costs to inventory produced during the period in which the costs are incurred (essentially expense as you go); this was despite the long-standing practice of many mining companies of equalising the costs over production, usually using average stripping ratios. This approach was controversial as many commentators believed that it did not reflect their view of the economies of the decision to mine, and created inappropriate volatility in the income statements of many mining companies. In 2006 the Canadian accounting standard setter issued specific guidance allowing stripping costs to be capitalised in certain circumstances.
The IFRS Interpretations Committee has now decided to address this issue.