A new publication from PricewaterhouseCoopers, Financial Reporting in the Mining Industry – International Financial Reporting Standards (FRIM), provides an essential guide on how to tackle the many challenges which arise in applying International Financial Reporting Standards (IFRS) to the mining sector.

IFRS does not easily accommodate some important characteristics of the mining industry, including:

• The need for large up-front investment, with low success rates on exploration spending and long lead-times on new projects
• The existence of significant back-end costs, when mines are eventually closed, including obligations to the workforce and local communities 
• The existence of activities which result in saleable production but also contribute towards the development of the mine, and hence deliver longer term benefits as well.

Brian Taylor, FRIM project leader, PricewaterhouseCoopers, said:”Over the last few years, the mining industry has seen a rapid expansion in the number of entities which report under IFRS. To date, however, there has been little guidance to help mining entities in dealing with industry-specific issues. We have prepared FRIM to help fill this void, and we are confident it will contribute towards improving comparability across what is arguably one of the world’s most global industries.”

Areas of particular difficulty for the sector include the commissioning of new operations; decommissioning; business combinations; deferred stripping; long-term stockpiles; impairment; functional currency; and the determination of the reserve/resource base for accounting purposes. The policies adopted in these (and other) areas can have a crucial impact on the amounts reported in a mining entity’s financial statements. IAS 39, dealing with financial instruments, has also posed challenges for mining entities  – as it has for many industries. Mining companies that assumed their activities would fall outside IAS 39 have often found this is not the case, for example because of the rules on ’embedded derivatives’.

The International Accounting Standards Board has established an Extractive Activities working group. However, the working group is not expected to issue formal guidance to the mining industry for several years. While the companies in some sectors have formed industry groups to discuss solutions and improve consistency, in the absence of detailed guidance from the standard-setters, this has not happened in the mining sector.

Against this background, FRIM provides a comprehensive analysis of the policies that mining entities can adopt under IFRS across a broad range of industry specific issues.

The publication will be useful for executives and financial managers in the mining industry as well as investors, analysts, accounting bodies and governments interested in the accounting and reporting practices of the mining industry.