PDAC seeks accounting standards

The following is a recent open letter from the Prospectors & Developers Association of Canada to Ronald Salole, director of accounting standards with the Toronto-based Accounting Standards Board.

The Prospectors & Developers Association of Canada (PDAC) is the national organization representing the Canadian minerals exploration community at home and abroad. Our 5,000 individual and corporate members include prospectors, junior and senior mining companies, the financial community and service sectors.

Approximately 25% of the publicly listed companies in Canada are in the mining and mineral exploration business, and many of these companies rely on the capital markets to fund their activities.

Our members are concerned about access to capital in our increasingly competitive environment. Canada is the hub of world mining finance, yet we do not have our own set of definitive accounting standards for resource companies. While Canada has shown leadership in the development of technical standards for resource industries, our accounting standards lag far behind. We need an accounting standards framework that promotes relevant financial information that is not overly complex and that is appropriate for the mining and mineral exploration industries.

In our view, the current approach used by the Accounting Standards Board of both harmonization with U.S. Generally Accepted Accounting Principles (GAAP) while converging with U.S. and international standards is counter-productive since it adds complexity to accounting standards. Ideally, there should be one set of accounting standards. We understand that the Financial Accounting Standards Board in the United States has agreed to work toward a converged set of standards with the International Accounting Standards Board (IASB). It seems logical for Canada to do the same.

The minerals industry has been overlooked by both the U.S. standard setters and by the IASB. While the U.S. standard setters’ objective appears to be to ignore the distinctive characteristics of the mineral industry, the IASB has deferred addressing issues particular to our industry. In the current environment, different jurisdictions apply different or multiple accounting principles — for example, in the accounting for exploration costs. This leads to confusion and makes comparisons of companies more difficult.

The U.S. standards are not our favoured model to follow. A rules-based approach as used in the U.S. results in financial reporting that is unduly complex, costly and, in many cases, results in illogical accounting, such as in the treatment of stock-based compensation.

A principle-based approach better fits the uniqueness of the resource industry. Historically, the development of standards based on a conceptual framework has resulted in financial statements that are more useful and understandable to the non-expert user.

In summary, we encourage the IASB to adopt international financial reporting standards. In addition, we see an opportunity for Canadian standard-setters to lead in the development of principle-based accounting standards for the minerals industry.

Tony Andrews

Executive Director, PDAC

and Robert Whittall,

Chairman, Financial and Taxation Committee