No. It was introduced as a temporary solution and remains in place until IASB issues a replacement.

IFRS 6 – Exploration for and Evaluation of Mineral Resources

IFRS Guide>>

July 17, 2025

IFRS 6 is an International Financial Reporting Standard that provides accounting guidelines on the recognition, measurement, presentation, and disclosure of expenses incurred during the exploration for and evaluation of mineral resources – such as oil, natural gas, and minerals.

This standard is particularly relevant to entities in the extractive industry, including companies involved in early-stage resource exploration.

At Mugo & Co., we’ve created this comprehensive guide to IFRS 6, highlighting its development history, core provisions, relevance in Kenya, and the limitations that practitioners should be aware of.

Key Takeaways

IFRS 6 is an interim accounting standard for companies exploring or evaluating oil, gas, and mineral resources.
It allows the use of existing accounting policies to maintain reporting continuity, even if they diverge from other IFRSs.
Impairment is only triggered by specific events, making asset write-downs less frequent than under IAS 36.
IFRS 6 is relevant in Kenya, especially for companies under the Mining Act and Petroleum Act.
The standard lacks clarity in key areas (e.g., definitions, ESG integration) and awaits a permanent replacement.
ICPAK plays a key role in promoting adoption, especially in ESG-aligned reporting frameworks.

Introduction to IFRS 6

The primary objective of IFRS 6 is to prescribe the financial reporting for the exploration for and evaluation of mineral resources.

It is an interim standard, introduced to provide temporary guidance while the IASB worked on a more permanent standard for the extractive sector.

Brief History of IFRS 6

Issue Date: December 2004
Effective Date: Annual periods beginning on or after 1 January 2006
Predecessor: None (IFRS 6 is the first of its kind)
Key Amendments to IFRS 6:

2005: Transitional relief amendments

2010: Discussion paper issued, no consensus reached

2011–2012: Project stalled due to stakeholder divergence

2023: Official project closure by IASB; no new replacement announced

Why was IFRS 6 Developed?

Before IFRS 6, there was no standardized way to report on exploration and evaluation (E&E) activities, leading to inconsistent and incomparable financial statements.

IFRS 6 was designed to:

Offer interim guidance for E&E accounting.
Allow continued use of pre-existing policies, with emphasis on relevance and reliability.
Serve as a platform for more comprehensive future guidance.

Key Provisions of IFRS 6

1. Scope of Application

IFRS 6 applies only to expenditures incurred in the exploration and evaluation phase, including:

Acquisition of exploration rights
Geological, geophysical, geochemical, and seismic studies
Exploratory drilling (e.g., Turkana oil drilling)
Trenching and sampling
Evaluation of technical feasibility and commercial viability

Excluded:

Costs before obtaining legal rights
Costs after technical feasibility and commercial viability have been confirmed

2. Use of Existing Accounting Policies

Entities are permitted to continue applying existing E&E accounting policies, even if inconsistent with other IFRSs, provided they produce relevant and reliable financial information.

This provision ensures sectoral flexibility but increases inconsistency across industries.

3. Changes in Accounting Policies

Entities may change their E&E accounting policies only if:

The new policy provides more relevant or reliable information.
The change aligns with IAS 8 principles even if not fully compliant.
This provision helps entities improve reporting without being penalized for legacy practices.

4. Recognition of E&E Assets

Entities may capitalize exploration and evaluation expenditures as assets if and only if:

The costs are directly attributable to specific exploration activities
The assets are initially measured at historical cost

Examples:

Drilling rights : classified as an “ intangible asset”
Drilling equipment: classified as a “tangible asset”

5. Classification of E&E Assets

E&E assets must be classified based on their nature:

Tangible Asset: Equipment, vehicles
Intangible Asset: Licenses, rights

Note: If a tangible asset is used to create an intangible asset, the consumed portion is treated as part of the intangible asset’s cost.

6. Impairment Testing (Modified Approach)

IFRS 6 relaxes the impairment rules under IAS 36:

Assets are tested for impairment only if triggering events occur, such as:
Expiration of legal rights
Suspension of planned exploration
No viable resource discovery

N/B: When impairment is triggered, full IAS 36 procedures apply.

7. Transition Provisions

IFRS 6 permits:

Retrospective recognition of prior E&E assets
Simplified adoption for companies already capitalizing E&E costs

This flexibility has encouraged early adoption among exploration companies.

8. Disclosure Requirements

Entities must disclose:

Accounting policies for E&E expenditures
Amounts of assets, liabilities, income, and expenses
Events leading to impairment
Judgements in asset capitalization decisions

These disclosures improve transparency but fall short of providing sufficient detail on risks and sustainability.

Key Developments and Improvements

2018 PIR: Post-Implementation Review reaffirmed the need for sector-specific guidance.
Research project: IASB explored new models for reserve reporting and impairment.
ESG Integration: Future guidance may integrate environmental disclosures (site restoration, climate risk, sustainability).

Kenya’s IFRS 6 Adoption Journey

Kenya’s adoption of IFRS 6 has been steered by ICPAK, which endorses all IFRSs issued by the IASB.

IFRS 6 is particularly relevant to:

Oil & gas exploration (e.g. Tullow Oil in Turkana)
Mining companies under the Mining Act, 2016
Private/state entities in geothermal or mineral evaluation

ICPAK’s Role in the Adoption of IFRS 6

Promotes awareness through Capacity Building and Training programs and seminars
Aligns IFRS 6 with PSASB and local laws (Petroleum and Mining Acts)
Encourages integration with ESG reporting and climate disclosures

Challenges of IFRS 6 Adoption in Kenya:

Vague definitions of “exploration costs” lead to inconsistent practices
Long project delays: which have prolonged asset capitalization without impairment
Limited disclosure guidance for foreign investors

Case Study: Tullow Oil’s Exploration Journey in Turkana

Tullow Oil has been exploring for oil in Northern Kenya, particularly in Turkana, for over a decade.

Their efforts have uncovered more than 460 million barrels of oil – a major milestone for Kenya’s energy sector.

However, despite these discoveries, commercial production has not yet begun. The company is still waiting on critical infrastructure, especially a pipeline and final government approvals, to move the project forward.

Throughout this period, Tullow has been applying IFRS 6 to manage its financial reporting obligations during the exploration stage. Here’s how that has played out:

IFRS 6 Requirement	How Tullow Oil Applied It
Track all exploration costs	Tullow records all expenditures related to seismic surveys, drilling of exploratory wells, and geological assessments.
Assess whether the project is still viable	With delays in infrastructure, Tullow is required to evaluate if the project continues to make financial sense.
Recognize impairment when necessary	In 2023, Tullow wrote off $17.9 million in exploration assets due to uncertainty about the project’s future.
Disclose risks and updates	The company includes updates in its financial reports on operational delays, government negotiations, and risks to timelines.

Major Shortcomings of IFRS 6

1. Temporary Nature

IFRS 6 was designed as an interim standard.
It allows continued use of other financial reporting standards , causing inconsistencies in financial reports.

2. Limited Scope

IFRS 6 Applies only to E&E phase; ignoring the:

Development & production costs
Resource/reserve valuation
Site restoration or environmental liabilities

3. Ambiguous Definitions

IFRS 6 offers no formal definitions of key terms like “exploration” and “evaluation”
Overlapping interpretations affect capitalization and disclosures

4. Weak Impairment Framework

Delays impairment recognition until trigger events
May result in inflated asset values and lower transparency

5. Inadequate Disclosures

IFRS 6 offers few mandatory disclosures on resource risks, ESG, or asset valuation
Stakeholders often lack enough data to assess project viability or risk

6. Global Inconsistencies

Countries like Canada rely on their own models
Without global standardization, comparability across borders is hindered

FAQs on IFRS 6

Q1: Who must apply IFRS 6?

Entities involved in exploration and evaluation of mineral resources, including mining, oil & gas, and geothermal companies.

Q2: Can exploration costs be capitalized?

Yes. IFRS 6 allows certain expenditures to be capitalized if they meet recognition criteria.

Q3: Does IFRS 6 override other IFRSs?

Temporarily. Entities can use pre-existing policies even if inconsistent with other IFRSs, provided they produce relevant and reliable information.

Q4: Is IFRS 6 permanent?

No. It was introduced as a temporary solution and remains in place until IASB issues a replacement.

Q5: How does IFRS 6 relate to ESG standards like IFRS S2?

While IFRS 6 focuses on financial reporting, ESG standards such as IFRS S2 cover climate and sustainability risks. Future convergence may be necessary.

Conclusion

IFRS 6 plays a vital role in standardizing financial reporting for early-stage extractive operations. While it offers flexibility and clarity in some areas, its temporary nature and limited scope present significant challenges.

In Kenya, the standard has been instrumental in guiding financial reporting in oil, gas, and mining sectors.

However, its shortcomings underscore the need for more comprehensive guidance from the IASB, especially on ESG, sustainability, and asset impairment.

Call to Action (CTA):

Need help applying IFRS 6 or navigating exploration and evaluation accounting?

Talk to the experts at Mugo & Co.

We offer tailored guidance for companies in the extractive industry – ensuring your financial reporting is compliant, clear, and decision-ready.

Contact us today to schedule a consultation.

Contact an expert for support

Call: +254 710 951 698

Prefer Email? info@mugo-co.com

Disclaimer:

This content is for informational purposes only and does not constitute professional advice. For tailored guidance, consult a qualified accounting advisor or contact Mugo & Co. directly.

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