License relinquishment

 

Licences for exploration (and development) usually cover a specified period of time. They may also contain conditions relating to achieving certain milestones on agreed deadlines. Often, the terms of the license specify that if the entity does not meet these deadlines, the licence can be withdrawn. Sometimes, entities fail to achieve these deadlines, resulting in relinquishment of the licence. A relinquishment that occurs subsequent to the balance sheet date but before the issuance of the financial statements, must be assessed as an adjusting or non-adjusting event.

If the entity was continuing to evaluate the results of their exploration activity at the end of the reporting period and had not yet decided if they would meet the terms of the licence, the relinquishment is a nonadjusting event. The event did not confirm a condition that existed at the balance sheet date. The decision after the period end created the relinquishment event.

If the entity had made the decision before the end of the period that they would not meet the terms of the licence or the remaining term of the licence would not allow sufficient time to meet the requirements then the subsequent relinquishment is an adjusting event and the assets are impaired at the period end. Appropriate disclosures should be made in the financial statements under either scenario.