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Accounting for the extractive industries has recently been added to the work program of the IASC, suggesting that Australian standard-setters will soon reconsider the relevant Australian standards. The method to be used to account for pre-production costs is likely to be a major concern in these deliberations. This paper discusses the available alternative accounting methods, including the change in regulation that SAC 4 would suggest is required. The paper reviews the development of the existing standard and presents evidence of significant diversity in mining companies' accounting practices. With this background in mind, the future of accounting regulation in the area is considered.
The method of accounting for pre-production costs in the extractive industries has been the subject of vigorous debate in Australia, particularly during the 1970s. Developments in financial reporting suggest that the time is right for a reexamination of the issue. In 1989 the then Accounting Standards Review Board (ASRB) and the Australian Accounting Research Foundation (AARF) indicated (Release 419/ED 47 1989, para. 3) that accounting for the extractive industries was to be subject to extensive scrutiny prior to revision of the existing accounting standards AAS 7 and AASB 1022 Accounting for the Extractive Industries.1 While mooted a decade ago, such a review has not yet taken place.
Interestingly, the September 1994 issue of the AARF & AASB Report (p. 16) included review of the extractive industries standard in a list of the high-priority projects on the work program of the Public Sector Accounting Standards Board (PSASB) and the Australian Accounting Standards Board (AASB). The December 1996 issue of The Standard (p. 16) indicated that it remained a part of the PSASB work program at that time.2 More recently the International Accounting Standards Committee (IASC), at its April 1998 meeting, placed on its agenda a new project dealing with the extractive industries. A steering committee for the project, with an Australian chair, was appointed in July 1998, with the first major step in the process to be preparation of a discussion paper (IASC 1998). Given the current program to harmonise Australian and international accounting standards, this move by the IASC suggests that the Australian standard-setters cannot delay much longer their reconsideration of this country's extractive industries standards. Possibly the most controversial aspect to...