Proposed amendments to financial and disclosure requirements in
the extractive industries sector will see a significant overhaul of
existing standards and greater obligations on entities to declare
information on a number of activities that currently may go
unreported. Initial research completed into International Financial
Reporting Standards (IFRS) will oblige companies in this sector to
disclose information in an arena where, broadly, there has been
minimum IFRS requirements for disclosure thus far.
Released for comment recently, the Extractive Activities
Discussion Paper proposes far-reaching disclosure compliance
principles in the interests of shareholders and investors and other
sectoral stakeholders. The proposals are also intended to provide a
standardised platform for companies with extractive activities to
produce and compare financial results.
While the South African extractive industries sector has
historically been quite forthcoming with thought-leading
disclosures, it might be necessary for the sector to prepare for
what are likely to become new requirements around disclosure.
Some of the disclosure areas that may be impacted upon
main assumptions in reporting reserve quantities, a sensitivity
analysis and period-on-period reconciliations – by
commodity and by country or project
current value measurement and changes
period-on-period– based on geographical region
production revenues – by commodity
cash flows for exploration, development and production
– as a time series over a defined period.
While the intention is to encourage faithful disclosure of
information in the areas above, it is also useful to note a few
gaps that could be addressed to enhance reporting and assurance
activities in the sector. One of the more significant of these is
the estimation of resources. Reporting of resources is fairly
common in the mining sector in South Africa and is encouraged to
continue. The disclosure requirements in the Extractive
Activities Discussion Paper are meant to provide a minimum
starting point, also in comparison with the oil and gas
There has been recognition that financial volatility and
commercial sensitivity differ across extractive industry sectors,
and the need to disclose assumptions in estimating value based on
reserves and resources would enhance more than just reporting
standards. While there has been much debate about fair value and a
standardised measure of proved and probable reserves in relation to
reporting standards and the recognition in the statement of
financial position, it is useful to disclose the basis for the
preparation of reports and the assumptions that inform any
reconciliation of changes in value. The collation of information as
part of the disclosure process would therefore require the
disclosure of sensitivity to main assumptions in response to
prevailing market conditions and will be useful to a wide range of
Information on reserves and resources is the starting point for
presenting useful data in reporting in the extractives industry and
will continue to play an important role in harmonising
Through the Discussion Paper, a platform has been
created for the International Accounting Standards Board (IASB) to
move forward on issuing a standard for extractive activities. As
little specific guidance is currently available in IFRS and
regulations that govern disclosure in the mining industry often
differ, consistency can only be achieved through a specific IFRS
standard. A standard will make it possible for useful information
to be presented on a common and integrated basis.
The deadline for public comment on the proposals is 30 July 2010
and can be directed to the South African Institute of Chartered
Accountants or the IASB directly via e-mail.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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