Research Report

The capitalisation of intangibles debate: accounting for exploration and evaluation expenditure in extractive activities.



Constantatos A, Dionysiou D, Slack R, Tsalavoutas I & Tsoligkas F (2021) The capitalisation of intangibles debate: accounting for exploration and evaluation expenditure in extractive activities.. Association of Chartered Certified Accountants and Adam Smith Business School. Glasgow.

There are concerns that financial statements no longer reflect the underpinning drivers of value in modern business (Bernanke 2011; Haskel and Westlake 2017; Lev and Gu 2016). Such concerns are particularly relevant to accounting for internally generated intangible assets and intangibles in general. International Accounting Standard (IAS) 38 Intangible Assets, which governs the treatment of the capitalisation of development costs, has been characterised as a standard reflecting prudence and conservatism with a corresponding prevalence of expensing (Mazzi et al. 2019a). Nonetheless, there is significant lack of evidence about the extent to which companies capitalise other internally generated intangible assets, especially those that fall outside the scope of IAS 38. In this research, we complement the study by Mazzi et al. (2019a) and focus on the accounting treatment of Exploration and Evaluation expenditure (hereafter E&E) by companies in the extractive industry (hereafter EI). E&E expenses include: the acquisition of rights to explore; topographical, geological, geochemical and geophysical studies; exploratory drilling; trenching; sampling; and activities that relate to evaluating the technical feasibility and commercial viability of extracting a mineral resource. In essence, the accounting for E&E costs can be viewed as an extension of the debate on the recognition of intangible assets versus the level of accounting conservatism. While there is scant literature on EI firms, and in relation to E&E expenditure in International Financial Reporting Standards (IFRS) reporting regimes, this research concentrates on the accounting policies used for the treatment of these expenditures. To the best of the authors’ knowledge, however, research on the amounts involved and hence recognised, expensed and impaired is not available. Furthermore, there is an absence of evidence on the characteristics of firms that capitalise and impair such expenditure. The overall objective of this research is to shed light on these areas.

FundersAssociation of Certified Chartered Accountants
Publication date31/12/2021
Publication date online24/02/2021
Place of publicationGlasgow

People (1)


Dr Dionysia Dionysiou

Dr Dionysia Dionysiou

Senior Lecturer, Accounting & Finance