The IPSASB to develop guidance on accounting for natural resources

No international accounting standard currently exists on accounting for natural resources. The International Public Sector Accounting Standards Board (IPSASB) agreed to develop guidance in this area as part of its 2019-2023 Work Plan. From a local perspective, the Standard of GRAP on Living and Non-living Resources (GRAP 110) became effective for financial periods commencing on or after 1 April 2020. On completion of the IPSASB’s project, the ASB Board will assess whether any changes are needed to GRAP 110.

Why the need for international guidance?

In responding to the IPSASB’s Strategy and Work Plan for 2019-2023, respondents noted that most governments often do not have sufficient information about the monetary value of their natural resources, prior to these resources being extracted, or rights being granted to third parties. As the identification and quantification of these resources should inform policy decisions, public sector entities need to have accurate information about their natural resources. The IPSASB intends to develop guidance relating to the recognition, measurement, presentation and disclosure of natural resources.

Development of a Consultation Paper to obtain views on accounting for natural resources

The first step in developing accounting guidance for natural resources within the scope of this project, will be the development of a Consultation Paper (CP). The CP will draw from the definitions of natural resources from various sources and propose a general description. The definitions, recognition criteria and measurement principles in the IPSASB’s Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities will be applied in developing proposed views on accounting for natural resources in the CP.

The IPSASB is likely to issue the CP in September 2021. Following the comment from respondents to the CP, the IPSASB will then commence with the development of a proposed IPSAS.

The scope of the project

Three attributes that are most common to natural resources include that they:

• are a resource, i.e. that they have service potential or the ability to generate economic benefits;
• are naturally occurring; and
• need to remain in their natural state.

Based on these attributes, subsoil resources (such as mineral and energy reserves), living resources and water – prior to their extraction, cultivation or harvest – are included within the scope of the project. When these resources are extracted, cultivated or harvested, they are likely in the scope of other Standards such as the Standard dealing with inventories. Resources where the biological transformation is actively managed are within the scope of the Standard dealing with agriculture.

Other resources, such as air and the electromagnetic spectrum are also natural resources. These resources are, however, excluded from the scope of the project as concerns around the right to access them, are more relevant than their recognition and measurement. This is because rights to sell air and spectrum licences embody the ability to legally access the airspace or the spectrum. The accounting issues are therefore more likely within the scope of the Standard dealing with intangible assets.

As part of the Accounting Standards Board’s ongoing commitment to influence the international standard setting process, the proposed guidance on natural resources will be issued concurrently for discussion locally. If you are interested in these developments, subscribe to the ASB’s newsletter to receive further updates, or follow the IPSASB’s Natural Resources project by visiting this link.

This article was prepared by the Secretariat of the ASB.