Recognition Of Value Beyond Proven And Probable Reserves In Business Combinations

Author?s note: Diversity in practice exists in the application of Generally Accepted Accounting Principles (GAAP) for purchase price allocations with respect to the recognition of Value Beyond Proven and Probable Reserves or VBPP, as defined by the Emerging Issues Task Force (EITF) in EITF 04-3: ?Mining Assets: Impairment and Business Combinations?. This diversity appears to arise from differing interpretations of what constitutes sufficient information to value components of VBPP in business combinations. Concerned with this diversity in practice, respected members of the mining community formed a working group which prepared an issues paper that discussed this diversity and provided recommendations for recognition and valuation of VBPP in business combinations. The working group then submitted this paper to the EITF, requesting further guidance be issued on the concept of VBPP. In conjunction with the submission to the EITF, the working group also provided this paper to the United States Securities and Exchange Commission (SEC) for review and comment. The EITF discussed this issue at its May, 2008 agenda committee meeting. However, it declined to add this topic to the EITF agenda for further consideration. Absent additional guidance on VBPP from the EITF, the working group submitted a proposed definition of VBPP to the U.S. Securities and Exchange Commission for its consideration. The following article, which is consistent with the issues paper that was submitted to the EITF and the SEC, discusses the components of and valuation techniques for VBPP. The correspondence with the U.S. Securities and Exchange Commission, which includes the proposed definition of VBPP by the working group, is attached as Appendix 1 to this article.