The IPSASB approves an Exposure Draft on tangible natural resources

Scope

A tangible natural resource may have a primary intended use within the scope of another existing International Public Sector Accounting Standard (IPSAS). These items are excluded from the scope of the ED to avoid duplication of guidance. An example is when an entity holds water in a controlled environment to sell or distribute. Even though the water meets the definition of a tangible natural resource, it is not accounted for in terms of ED 92 but falls within the scope of IPSAS 12 on Inventories.

As a result of the ED’s scoping approach, tangible natural resources held for conservation are likely to be a category that falls within the scope of ED 92.

Tangible natural resources held for conservation can also be heritage assets in IPSAS 45 on Property, Plant and Equipment when they are held for long periods, preserved for the benefit of future generations, and embody service potential and/or the capacity to generate future economic benefits. ED 92 proposes that these heritage assets fall within the scope of this ED, not IPSAS 45. To effect this, the description of heritage assets in IPSAS 45 is amended by deleting “environmental” and “natural”.

Recognition

A tangible natural resource is recognised if:

(a)  it is probable that economic benefits or service potential associated with the resource will flow to the entity;

(b)  the entity controls the resource as a result of past events; and

(c)   the resource can be measured reliably.

The ED proposes that when an entity holds a tangible natural resource that meets the definition of an asset, but that can’t be measured reliably, information about that resource needs to be disclosed in the financial statements.

Judgement is applied to the facts and circumstances specific to each tangible natural resource to assess control. To assist an entity with its control assessment, ED 92 includes indicators of control.

The recognition of a tangible natural resource as an asset involves an assessment of any uncertainties related to the existence and measurement of the item. If there is uncertainty over the quality of an item in a given location, and whether the item exists, for example, unextracted subsoil resources, the resource cannot be recognised until the uncertainty has been resolved.

ED 92 includes a rebuttable presumption that recognised tangible natural resources within the scope of the ED have indefinite useful lives. The presumption is based on the fact that tangible natural resources are generally not used or consumed in the same manner as other tangible assets that fall within the scope of other IPSAS. As a result, tangible natural resources are not depreciated.

The disclosure requirements in ED 92 will enable users of financial statements to evaluate the nature and risks associated with tangible natural resources. The disclosure requirements for recognised tangible natural resources will also enable users to evaluate the effect of these resources on the entity’s financial position, financial performance and cash flows.

ED 92 exempts an entity from disclosing information about rare or endangered tangible natural resources. This exemption reduces further endangerment or degradation of the natural resource.