Varied international practice in accounting for extractive activities

This paper provides extensive empirical evidence of varied international practice in accounting for exploration and evaluation (E&E) costs under the permissive standard IFRS 6. We distinguish 10 different E&E policy methods in the reports of 307 firms from 11 countries. We compare the methods used (as assessed from firms' detailed notes) with any policy labels assigned by firms (such as successful efforts or full cost). These labels are not defined in IFRS 6, and the labels assigned by firms are often inconsistent with the definitions in non-IFRS accounting requirements. We then analyse the determinants of E&E policy choice. We find that policy methods differ between countries, that mining firms use more conservative policies than oil & gas firms, that (for mining firms) more conservative policies are used by producing firms than by firms whose only activity is E&E, and that the US version of the successful efforts method is more likely to be used by oil & gas firms and by firms with a US listing. We also show that an analysis based on labels can generate biased samples and misleading results because many firms do not assign a policy label.