Ind AS 106 specifies the financial reporting for the exploration for and evaluation of mineral resources — the search for minerals, oil, natural gas, and similar non-regenerative resources, and the determination of whether extracting them is technically feasible and commercially viable. Like its international counterpart (IFRS 6), it is a limited-scope, interim standard: rather than prescribing a full model, it allows entities to continue much of their existing accounting for exploration and evaluation, while imposing some discipline and requiring impairment testing and disclosure. It is a specialist standard relevant to extractive-industry entities, with no equivalent in the AS framework.
Objective and scope
The objective is to specify the financial reporting for the exploration for and evaluation of mineral resources. In particular, the standard requires limited improvements to existing accounting practices for exploration and evaluation expenditures; requires entities that recognise exploration and evaluation assets to assess them for impairment and to measure any impairment in accordance with Ind AS 36 (as modified); and requires disclosures that identify and explain the amounts arising from the exploration for and evaluation of mineral resources.
An entity applies the standard to exploration and evaluation expenditures that it incurs. It does not apply to expenditures incurred before the exploration for and evaluation of mineral resources (such as expenditures incurred before the entity has obtained the legal rights to explore a specific area), nor to expenditures incurred after the technical feasibility and commercial viability of extracting a mineral resource are demonstrable (that is, once development and production begin, which are outside this standard).
Exploration and evaluation
Exploration for and evaluation of mineral resources is the search for mineral resources — including minerals, oil, natural gas, and similar non-regenerative resources — after the entity has obtained legal rights to explore in a specific area, as well as the determination of the technical feasibility and commercial viability of extracting the mineral resource. So the standard covers a specific window: from obtaining the legal right to explore, up to (but not including) the point at which extraction is shown to be technically feasible and commercially viable.
Exploration and evaluation expenditures are expenditures incurred by an entity in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. Examples of expenditures that might be included are those on acquisition of rights to explore, topographical/geological/geochemical/geophysical studies, exploratory drilling, trenching, sampling, and activities in relation to evaluating the technical feasibility and commercial viability of extraction.
Recognition and measurement
Reflecting its interim character, Ind AS 106 permits an entity to continue to apply its existing accounting policies for exploration and evaluation assets, provided the resulting information is relevant and reliable — the entity is temporarily relieved from applying the full hierarchy in Ind AS 8 (on selecting accounting policies) to these expenditures. In practice, this means an entity develops an accounting policy specifying which expenditures are recognised as exploration and evaluation assets and applies it consistently.
Initial measurement: exploration and evaluation assets are measured at cost. The entity determines a policy for the elements of cost included.
Subsequent measurement: after recognition, the entity applies either the cost model or the revaluation model to exploration and evaluation assets. If the revaluation model is applied, it is applied consistently with the classification of the assets (as tangible or intangible).
Classification: an entity classifies exploration and evaluation assets as tangible or intangible according to their nature and applies the classification consistently (for example, drilling rights might be intangible, while vehicles and drilling rigs used in exploration are tangible).
Impairment
A key discipline the standard imposes is impairment. Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying amount may exceed the recoverable amount. Ind AS 106 specifies particular indicators that trigger an impairment assessment, including: the period for which the entity has the right to explore in the specific area has expired (or will expire in the near future) and is not expected to be renewed; substantive expenditure on further exploration and evaluation is neither budgeted nor planned; exploration and evaluation have not led to the discovery of commercially viable quantities and the entity has decided to discontinue such activities in the area; and sufficient data exist to indicate that, although development is likely to proceed, the carrying amount is unlikely to be recovered in full. When any such indicator arises, impairment is measured, presented, and disclosed in accordance with Ind AS 36 (with the standard allowing the entity to determine an accounting policy for allocating exploration and evaluation assets to cash-generating units for impairment testing).
Disclosure
An entity discloses information that identifies and explains the amounts recognised in its financial statements arising from the exploration for and evaluation of mineral resources — including its accounting policies for exploration and evaluation expenditures (including the recognition of exploration and evaluation assets); and the amounts of assets, liabilities, income and expense, and operating and investing cash flows arising from the exploration for and evaluation of mineral resources. Exploration and evaluation assets are treated as a separate class of assets, with disclosures consistent with that classification.
A brief illustration
An oil and gas company obtains a licence to explore a specific offshore block. From the point it holds that legal right, it incurs exploration and evaluation expenditures — geological studies, seismic surveys, and exploratory drilling. Under Ind AS 106, it applies its established policy to recognise certain of these as exploration and evaluation assets (measured at cost), classified as tangible or intangible according to their nature. If the exploration licence is nearing expiry with no renewal expected, or drilling fails to find commercially viable quantities and the company decides to stop, that is an impairment indicator, and the company tests the assets for impairment under Ind AS 36. Once the company demonstrates that extraction from a discovery is technically feasible and commercially viable, the expenditures fall outside Ind AS 106, and development and production accounting (under other standards) takes over. The AS framework has no standard governing this exploration-and-evaluation window.
Why there is no AS equivalent
The AS framework does not have a standard equivalent to Ind AS 106. Exploration and evaluation of mineral resources is a specialist area, and under the AS framework such expenditures would be dealt with using general principles and industry practice rather than a dedicated standard. Ind AS 106 (mirroring IFRS 6) provides a specific, if interim, framework — permitting continuation of existing policies but imposing classification, impairment, and disclosure discipline — that has no counterpart on the AS side. This standard is relevant only to entities in the extractive industries (mining, oil, and gas).
Common pitfalls
Recurring issues (for extractive-industry entities) include recognising as exploration and evaluation assets expenditures incurred before obtaining legal rights to explore, or after technical feasibility and commercial viability are demonstrable (both outside the standard); failing to assess exploration and evaluation assets for impairment when the specified indicators arise; inconsistent classification of the assets as tangible or intangible; and inadequate disclosure of the accounting policies and the amounts arising from exploration and evaluation.
Why this is cleaner on a unified system
Accounting for exploration and evaluation — capturing the relevant expenditures, classifying and measuring the assets, monitoring impairment indicators, and disclosing the associated amounts and cash flows — is more reliable when the project cost records and the ledger sit in one connected system. When exploration and evaluation expenditures flow into the asset records and the accounts from a single source of truth, applying the entity's recognition policy, testing for impairment when indicators arise, and producing the required disclosures is more straightforward than reconciling separate project records against the accounts. (For most non-extractive businesses, this standard will not apply.)
This article is a detailed educational summary of Ind AS 106 in plain language. It is not a substitute for the full text of the standard. Accounting standards are amended from time to time; always verify the current, authoritative text of Ind AS 106 as notified under the Companies Act before relying on it, and consult a qualified chartered accountant for application to your specific circumstances.