The IPSASB’s progresses its project on natural resources

Background to the development of international guidance

As natural resources have significant economic, social, and environmental impacts for all governments, such as supporting ecosystems, climate regulation or contributing to economic growth, a need for consistent and transparent reporting on their financial effects was identified internationally. As no specific international accounting Standard exists to account for natural resources, i.e. subsoil resources, living resources and water, prior to their extraction, cultivation or harvest, the International Public Sector Accounting Standards Board (IPSASB) agreed to develop guidance in this area. 

Developing a proposed IPSAS

The IPSASB issued a Consultation Paper (CP) in 2022, indicating that the objective of the IPSASB’s natural resources project is to develop guidance on the accounting for natural resources in general purpose financial statements. Based on support for this proposal from respondents, the IPSASB’s commenced with the development of an International Public Sector Accounting Standard (IPSAS) on natural resources.

The first draft of the proposed IPSAS was discussed at the IPSASB’s September 2023 meeting. The proposed IPSAS defines natural resources and applies the recognition and measurement principles in the Conceptual Framework for General Purpose Financial Reporting to account for natural resources. The proposed IPSAS also includes criteria to assess if an item meets the definition of an asset, how to account for natural resource related expenses, and presentation and disclosure requirements.

The IPSASB’s agreed that the earlier decision to develop a standalone IPSAS should be reconsidered. This decision was based on the observation that natural resources that meet the asset recognition criteria, would generally meet the definition of property, plant, and equipment, inventories, biological assets, agricultural produce, or investment property, as defined in other IPSAS. These other IPSAS should be applied to account for these natural resources.

Natural Resource – IFRS 6 alignment

Also based on feedback received to the CP, the IPSASB agreed to develop a separate Exposure Draft (ED) aligned with IFRS 6 on Exploration for and Evaluation of Mineral Resources. This ED provides guidance on accounting for expenditures incurred during the exploration and evaluation phase of extractive industries, for example oil and gas. 

The IPSASB also concluded that IFRIC 20 on Stripping Costs in the Production Phase of a Surface Mine is applicable to the public sector. The IPSASB agreed to combine the guidance from IFRIC 20 with IFRS 6, into a single pronouncement. At its September 2023 meeting, the IPSASB considered the first draft of this proposed ED. 

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 the guidance on natural resources, including other related EDs.

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