New Accounting Requirements Affect Mining Stripping Costs

Michelle Remo, “Big 4″ observer
November 09, 2011 /

Only a few mining companies are disclosing their accounting policy for production stripping costs, while a little less are expending such costs as incurred for some or all of their mines, according to a research conducted by accounting firm KPMG.

The International Accounting Standards Board recently issued an Interpretation clarifying the requirements for accounting for stripping costs in the production phase of a surface mine. The Interpretation was developed by the IFRS Interpretations Committee, the interpretative body of the IASB.

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.

KPMG International Standards Group recently conducted a study on the most recent financial statements of 26 mining companies, which 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.

“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,” Wayne Jansen, Global Head of KPMG’s Mining practice, said.

However, KPMG emphasized that this does not mean that companies already deferring production stripping costs can continue as they were under the new requirements.

“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,” Jansen said.

“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,” Jansen added.

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.

 

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