Investors say extractives accounting proposals “insufficient”

Investors such as Norway’s KLP and Storebrand and asset managers Boston Common and Calvert have expressed mixed responses to draft proposals on the development of a new accounting standard for extractives activities.

While broadly welcoming the initiative, they say some of the plans are not adequate in key areas.

Indeed, many of the investors’ submissions use identical wording, suggesting a degree of coordination in the responses.

The International Accounting Standards Board issued a discussion paper on extractives last April, the result of an international research project on a possible future International Financial Reporting Standard (IFRS) for the area. The current standard, the “interim” IFRS 6 Exploration for and Evaluation of Mineral Resources, dates back to 2004.

Boston Common Asset Management says some of the proposals’ disclosure objectives are insufficient and also disputes the interpretation that the only focus of financial reports is investors. It reckons that electronic disclosure will be in place by the time an IFRS for extractives is developed which will “allow us to focus on the kind of analysis we wish to undertake even where the raw data is large”.

It wants the IASB to focus on the “completeness, comparability and reliability of disclosure.”
“We find that the discussion paper project team disclosure proposals are not adequate for the establishment of the comprehensive and systematic country-by-county reporting standard needed,” says the firm’s submission, signed by managing director Lauren Compere.Norwegian investors KLP and Storebrand use identical wording in their submissions.

The IASB recognises that a lack of guidance has meant that the accounting and disclosure of mining firms “often vary by industry, by jurisdiction, and by the size of the company”. Bennett Freeman, senior vice president at Calvert said the proposal was “more important and urgent than ever”.

Calvert’s Freeman also argued that the existing disclosure requirement under the voluntary Extractive Industries Transparency Initiative (EITI) has “significant shortcomings” for investors’ analysis of political risk. And the revenue data under EITI is too aggregated, and its reporting requirements have different interpretations.

Norges Bank Investment Management urged the IASB to explore the need for a dedicated IFRS. Despite welcoming new listing requirements in Hong Kong and the US, NBIM says the diversity of disclosure leads to a lack of comparability. “The development of an internationally accepted global reporting standard would therefore be welcomed.” It would also cut the scope for corruption.

Canada’s Northwest & Ethical Investments suggested various enhancements such as more disaggregated disclosure and the inclusion of environmental liabilities.

The comment period on the discussion paper closed at the end of last month. The IASB will now decide whether to add the project to its agenda. It’s estimated that an “exposure draft” would take at least 18 months to develop and that a final IFRS would take at least another year. Submissions