Varied Practice in Accounting for Extractive Activities under IFRS

Extractive firms form a major part of the stock markets of many countries which use IFRS for financial reporting, yet the key accounting issues are hardly regulated at all under a long-running ‘temporary’ standard. The resulting variety in practice has not been studied by any large-scale international survey. We hand-collect data on accounting policies from the annual reports of firms from 10 countries, focusing on the key issues of the scope of costs capitalized and the size of impairment pool. Many of our IFRS firms report the use of one of the two methods allowed in US GAAP: successful efforts and full cost. However, these are not defined in IFRS, and most of those firms do not use policies that are consistent with the US definitions of the methods. Instead, we identify nine distinct methods, which we classify by degree of conservatism. We find that there are highly significant differences in policies by country and by sub-industry (oil/gas versus mining).