Progress on the IPSASB’s natural resources project

The International Public Sector Accounting Standards Board (IPSASB) commenced with the development of a stand-alone International Public Sector Accounting Standard (IPSAS) on natural resources. This IPSAS will address the lack of guidance in accounting for tangible natural resources, i.e. naturally occurring items that embody service potential and/or have the capability to generate future economic benefits. Examples of such resources include subsoil resources, living resources and water prior to their extraction, cultivation or harvest.

The project was discussed by the IPSASB in December 2023, and a number of decisions were taken. This article explains them further.

Recognition and measurement of natural resources

The IPSASB debated and agreed the recognition and measurement criteria to be applied in accounting for natural resources. These principles will be developed consistent with the IPSASB’s Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities.

Recognition of a natural resource

A natural resource will be recognised as an asset if:

• the entity controls the resources as a result of a past event;
• it is probable that future economic benefits or service potential associated with the resource will flow to the entity; and
• the resource can be measured reliably.

Initial measurement

The IPSASB concluded that IPSAS 46 on Measurement should be applied to initially measure a natural resource. This means that the natural resource is measured using:

• a transaction price when the resource is acquired in an exchange transaction; or
• deemed cost (current value) if control of the asset was obtained in a non-exchange transaction.

Subsequent measurement

Subsequent to initial measurement, a natural resource is measured based on its primary intended use. Separate measurement principles will be developed for natural resources held for conservation and other natural resource assets. These principles will be debated at a future IPSASB meeting.

Other related guidance issued for comment 

The IPSASB developed separate proposed guidance for costs incurred in the exploration and evaluation of mineral resources, and to account for costs incurred to remove waste material in a surface mining operation. Two Exposure Drafts, that are aligned with IFRS 6 on Exploration for and Evaluation of Mineral Resources and IFRIC 20 on Stripping Costs in the Production Phase of a Surface Mine were approved for exposure. These two exposure drafts, i.e. ED 86 on Exploration for and Evaluation of Mineral Resources, and ED 87 on Stripping Costs in the Production Phase of a Surface Mine (Amendments to IPSAS 12, Inventories) will be issued later this month.

The way forward

As part of the Accounting Standards Board’s ongoing commitment to influence the international standard setting process, the Board will continue to monitor progress on the development of the natural resource guidance, including other related Exposure Drafts.

If you are interested in further developments on this project, subscribe to the ASB’s newsletter to receive further updates, or follow the IPSASB’s Natural Resource project by following this [Natural Resources | IPSASB].

Disclaimer

The article has been prepared by the Secretariat of the ASB for information purposes only. It has not been reviewed, approved, or otherwise acted on by the Board.