International accounting standard ( IAS)6:
Introduction:
IAS 6 was issued to guide how companies should account for the effects of
changing prices, such as inflation. It focused on adjusting financial
statements to reflect the real value of money in times of price instability.
Objective of IAS 6 :
The main objective was to provide users of financial statements with more
relevant information by adjusting financial data for inflation or deflation,
thus improving comparability and decision-making.
Key Features of IAS 6 :
- Encouraged restating historical cost figures to reflect current costs.
- Aimed to present a more realistic view of profits and asset values during
periods of inflation.
- Suggested disclosure of price-level adjusted data, especially in
economies experiencing high inflation.
Reasons for Withdrawal:
IAS 6 was withdrawn because:
- It lacked consistent application.
- It overlapped with other standards.
- Better frameworks (like IAS 29) were introduced to deal specifically with
hyperinflation.
- The need for inflation accounting became less pressing in many
economies.
Conclusion :
IAS 6 was nearly attempted to deal with the impact of inflation on financial
reporting, but due to its limited practically and acceptance it was
withdrawn. Today IAS29 fills the gap in extreme cases but there is no
standard for moderate inflation which remains a topic of ongoing debate.
International financial reporting standard
(IFRS)6:
Introduction:
IFRS 6 was issued by the International Accounting Standards Board (IASB)
to provide guidance for companies involved in the exploration and
evaluation of mineral resources such as oil, gas, and minerals. These
activities often involve high uncertainty and unique accounting
challenges. IFRS 6 allows entities to adopt flexible accounting policies
while maintaining transparency.
Objective of IFRS 6 :
The objective is to specify the financial reporting for exploration and
evaluation assets. It aims to improve the relevance and reliability of
information presented during the early, high-risk phase of resource
extraction.
Scope:
IFRS 6 applies only to expenditures incurred during the exploration and
evaluation phase, which includes:
- Obtaining the rights to explore,
- Geological and geophysical studies,
- Exploratory drilling,
- Sampling and related activities.
It does not apply to expenditures related to development or production.
Key Features :
- Use of Existing Policies: Entities may continue using their previous
accounting practices for exploration costs, even if they don’t fully comply
with IAS8.
-Recognition of assets: Costs directly attributable to exploration and
evaluation are recognized as assets if certain conditions are met.
- Impairment Testing: Entities must assess exploration assets for
impairment when facts suggest the asset’s carrying amount may not be
recoverable. Unlike IAS 36, IFRS 6 allows a simplified impairment test
during this phase.
- Disclosures: Entities must disclose the nature, financial effects, and risks
associated with exploration and evaluation activities.
Benefits:
- Allows flexibility for entities operating in diverse legal and economic
environments.
- Helps investors understand early-stage exploration risks.
- Encourages consistency and comparability in financial statements.
Conclusion:
IFRS 6 provides a practical approach to accounting for exploration and
evaluation activities. It balances flexibility with transparency, making it
easier for companies in the mining and energy sectors to report their
financial positions accurately during the uncertain early stages of resource
discovery.
Prepared by: Hafsa Hassan Hussien
