Advanced Financial Accounting Report: AASB 6 and Framework Consistency

This report analyzes the consistency between AASB 6 (Exploration for and Evaluation of Mineral Resources) and the AASB Conceptual Framework for financial reporting. The report begins by defining accounting policies related to exploration and evaluation expenditures, including examples such as acquiring exploration rights, sampling, and exploratory drilling. It then discusses the allocation of costs, both direct and indirect, to specific areas of interest. The core of the report examines the inconsistencies between AASB 6 and the Conceptual Framework, particularly concerning asset recognition criteria and expenditure recognition. The report highlights that the definition and recognition criteria for assets in AASB 6 are not consistent with the Conceptual Framework, particularly regarding the probability of future economic benefits and reliable measurement. The report also notes the lack of distinction between a firm's cost allocation and outside contractor costs. Finally, the report references relevant sources, including the AASB website and academic articles, to support its analysis.

Running Head: ADVANCED FINANCIAL ACCOUNTING
ADVANCED FINANCIAL ACCOUNTING
Name of the Student
Name of the University
Author Note

1ADVANCED FINANCIAL ACCOUNTING
Table of Contents
AASB 6 and AASB Conceptual Framework.............................................................................2
Consistency that exist between AASB6 and AASB Conceptual Framework............................2
Reference....................................................................................................................................4

2ADVANCED FINANCIAL ACCOUNTING
AASB 6 and AASB Conceptual Framework
Accounting policy is determined by the firm with the help of specifying the
identifying the expenditure for the evaluation as well as exploration of the assets and the
policies are applied continuously according to that. Therefore, in order to determine these
particular aspects, the firm considers the extent to which these expenditures are related with
the resources. The examples of the expenditures that are involved in the exploration as well
as evaluation of the assets are acquiring exploring rights, sampling, trenching and exploratory
drilling. In addition, it also consists of geochemical, topographical, geophysical and study of
geological. Moreover, those activities, which are related to the feasibility evaluation,
technical and commercial viabilities of the resource extraction (Aasb.gov.au. 2019).
Firm allocate the direct and indirect cost after recognizing the assets for the evaluation
and exploration to the particular areas of the interest. The difference is not made between the
incurred cost by the organization and the incurring of the services cost on company’s behalf
by the consultant. The cost of the leases as well as rights of the tenure, which are acquired as
the resources exploration and evaluation are included in the assets evaluation and
explorations cost (Aasb.gov.au. 2019). The cost, which is indirect, is included in asset’s
evaluation and explorations cost such as equipment’s depreciation. In the evaluation and
exploration of the assets, cost of general and administrative is also included. Although, these
cost are included to the extent of the fact that, these cost are directly in relation with the
firm’s operational activities in the assets evaluation and exploration in the areas of the
interest. However, there is not recognition of the expenditure that is in relation to the
development of the resources as assets evaluation and exploration (Aasb.gov.au. 2019).

3ADVANCED FINANCIAL ACCOUNTING
Consistency that exist between AASB6 and AASB Conceptual Framework
It has been find that there is no consistency between the prescribed rules of the AASB
6 in relation to the expenditure associated with the evaluation and exploration of the assets
with the prescribed AASB conceptual framework for the financial statement’s preparation
and presentation (Conceptual framework, 2019). This inconsistency occurs because of the
following reasons:
 The recognition’s method of definition as well as the criteria of the recognition is not
consistent with the concepts for recognizing the expenditure on the part of asset’s
evaluation and exploration.
 Further, distinction is not between the firm’s cost of allocation and outside
contractor’s cost.
 The recognition of assets in the balance sheet, in case of AASB conceptual framework
is when there exists the probability of future economic benefit of the assets and the
assets have gained the value in the most appropriate and reliable way (Yong & Tan,
2016).
 Although, in balance sheet it is not recognized, when there is no any probability of
future economic gain from incurring of the expenditure. However, it is recognized and
recorded as expense in the income statements (Burca, Mates & Puscas, 2015).
 There is existence of the degree of uncertainty in the flow of economic benefits,
which is beyond period of accounting.


4ADVANCED FINANCIAL ACCOUNTING
Reference
Aasb.gov.au. (2019). Retrieved 25 April 2019, from
https://www.aasb.gov.au/admin/file/content105/c9/Framework_07-
04_COMPjun14_07-14.pdf
Aasb.gov.au. (2019). Retrieved 25 April 2019, from
https://www.aasb.gov.au/admin/file/content105/c9/AASB6_08-15.pdf
Burca, V., Mates, D. & Puscas, A., 2015. Standard-Setters Versus Big4 Opinion, Concerning
Iasb Revision Project of the Conceptual Framework for Financial Reporting. the Case
of Presentation and Disclosures Chapter. Studia Universitatis „Vasile Goldis” Arad–
Economics Series, 25(2), pp.81-107.
Conceptual framework. (2019). Retrieved from
https://www.aasb.gov.au/pronouncements/conceptual-framework.aspx
Yong, K.O., Lim, C.Y. & Tan, P., 2016. Theory and practice of the proposed conceptual
framework: Evidence from the field. Advances in accounting, 35, pp.62-74.