Factors Affecting the Value-Relevance of Capitalized Exploration and Evaluation Expenditures Under IFRS 6

34 Pages Posted: 12 Aug 2019

See all articles by Andrew Ferguson

Andrew Ferguson

Department of Accounting, UTS

Stephen Kean

University of Auckland Business School

Gabriel Pundrich

University of Florida

Date Written: August 2, 2019

Abstract

This study examines factors affecting the value-relevance of financial and non-financial disclosure in the context of the long contentious International Financial Reporting Standards (IFRS 6). Relative to the capitalization of R&D expenditures, IFRS 6 follows a far less restrictive approach, delaying the requirement for probable future economic benefits in settings of high uncertainty. We compare the value-relevance of this asset with that of non-financial information commonly reported by mining firms, namely mineral resource estimates. We report evidence that investors utilize non-financial information to assess the value-relevance of financial information, initially focusing on whichever information is timelier. We do not find evidence that investors prefer conservative reporting practices in a setting with high uncertainty; rather we provide evidence that investors interpret the capitalization decision as a signal of project viability. This finding is of particular relevance to the ongoing Intangible Assets project being conducted by the International Accounting Standards Board (IASB).

Keywords: IFRS 6, intangible assets, value relevance, extractive activities

JEL Classification: G12, G14

Suggested Citation

Ferguson, Andrew and Kean, Stephen and Pundrich, Gabriel, Factors Affecting the Value-Relevance of Capitalized Exploration and Evaluation Expenditures Under IFRS 6 (August 2, 2019). Available at SSRN: https://ssrn.com/abstract=3431009 or http://dx.doi.org/10.2139/ssrn.3431009

Andrew Ferguson (Contact Author)

Department of Accounting, UTS ( email )

PO Box 123 Broadway
Sydney, NSW 2007
Australia
61 2 9514 3565 (Phone)

Stephen Kean

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

Gabriel Pundrich

University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

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