The International Accounting Standards Board
(IASB) has published a discussion paper on an IFRS for extractive
activities, but a group of lobbyists has warned the proposals do
not go far enough.
The document discusses how a new standard
could improve the relevance and comparability of financial
reporting on extractive activities of companies in the mining, oil
and natural gas sectors.
The IASB has taken the unusual step of noting
in its press release that it considered the views of the Publish
What You Pay coalition when preparing the discussion document.
Publish What You Pay has publicly criticised
the proposed standards as being watered down due to industry
pressure. The coalition pressures governments into being more
transparent about revenues generated from the oil, gas and mining
activities.
Extractive activities are undertaken by
entities when searching for and extracting minerals, oil or natural
gas. These entities face challenges assessing the potential
quantities of natural resources and accounting for the cost of the
extraction process.
Inadequate standards
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By GlobalDataThe IASB said existing standards do not
adequately address the accounting for the development and
production of minerals or oil and gas properties, which makes it
difficult for financial reporting users to assess the risks
involved in extractive activities.
There is also a lack of uniformity in
accounting across different jurisdictions.
“Mining and oil and gas companies are among
the largest public companies in the world and it is important for
users and preparers alike that the accounting in this area is
transparent and comparable,” IASB member Robert Garnett said.
A key feature of the proposal is that
extractive activities entities must present key financial
information on a country-by-country basis rather than the current
practice of aggregating information by region or business line.
Transparency vs cost
The Publish What You Pay coalition believes
the IASB should clearly recommend company payments are reported in
a country-specific manner.
It claims the IASB did not include this
requirement because of concerns it would add too much cost to the
financial reporting process.
“Any claim that real country-by-country
reporting costs too much is penny wise and pound foolish,” said
Vanessa Herringshaw of coalition member Revenue Watch
Institute.
“There is a price to upgrading any reporting
system, but investors face far greater costs when they lack the
tools to assess risk in the volatile extractive sector. If the
financial crisis has taught us anything, it is that corporate
transparency and accountability are vital to stability.”
Watered down?
Publish What You Pay coalition spokesperson
Radhika Sarin said the IASB proposals have been weakened by
industry pressure.
“The board should not settle for fulfilling
that mandate on a selective basis by valuing company anxieties over
the security of investors, or the interests of ordinary people in
poor countries with little voice in the boardrooms of London,”
Sarin said.
At the discussion paper stage, the extractive
activities proposals could be altered quite significantly.
A new standard will replace IFRS 6 Exploration
for and Evaluation of Mineral Resources, which was issued in 2004
as an interim standard pending completion of this project.
The IASB is seeking feedback on the discussion
paper until 30 July 2010.
