The Chairman noted that from the September meeting the Board will experiment with a new meeting format. The meetings will run from Tuesday morning until noon on Friday and will have larger breaks between sessions than currently occurs. He requested observers to monitor the IASB website for further details.

Impairment and cash-generating units

In June 2004, the Board confirmed its intention that an entity recognising an exploration and evaluation asset should be required to assess that asset for impairment and that IAS 36 should be used to measure, present, and disclose that impairment in the financial statements. However, it was persuaded by comments received from constituents that requiring IAS 36 recognition to be applied to assets for which there was insufficient data to make a proper, informed assessment of recoverable amount could lead to inappropriate impairment losses being recognised and would defeat the purpose of permitting entities to recognise exploration assets in the first place. Therefore, the Board agreed that the approach to recognition should be changed such that the assessment of impairment would be triggered by changes in facts and circumstances. This would allow entities to continue using their current practices.

The staff proposed that paragraphs 12 to 18 be replaced by wording similar to the following:

Recognition and measurement

12. Exploration and evaluation assets shall be assessed for impairment when and only when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. When facts and circumstances suggest that the carrying amount of an exploration and evaluation asset exceeds its recoverable amount, an entity shall measure, present and disclose any resulting impairment loss in accordance with IAS 36.

13. This IFRS requires an entity recognising an exploration and evaluation asset to assess that asset for impairment. However, sometimes exploration and evaluation assets do not generate cash flows and there is insufficient information about a specific area's mineral resources for an entity to make reasonable estimates of an exploration and evaluation asset's recoverable amount. This is because the exploration for and evaluation of the mineral resources has not reached a stage at which sufficient information is available. Therefore, this IFRS requires an entity to assess an exploration and evaluation asset for impairment only when facts and circumstances suggest that the carrying amount of such an asset exceeds its recoverable amount. Once facts and circumstances indicate that an exploration and evaluation asset may be impaired, IAS 36 shall be applied with respect to measurement, presentation and disclosure.

14. One or more of the following facts and circumstances would suggest that an entity should test an exploration and evaluation asset for impairment:

a. the period for which the entity has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed

b. further exploration for and evaluation of mineral resources in the specific area are neither budgeted nor planned for in the near future

c. exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities mineral resources and the entity has decided to discontinue such activities in the specific area

d. sufficient data exists to indicate that, while a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from a successful development or by sale

In such cases, the entity performs an impairment test in accordance with IAS 36 Impairment of Assets. Any impairment loss is recognised as an expense in accordance IAS 36.

15. The list in paragraph 14 is not exhaustive. An entity may identify other indications that an exploration and evaluation asset may be impaired and these would also require the entity to determine the asset's recoverable amount.

16. Unless it is part of a cost centre under full cost accounting, when a specific area is surrendered, abandoned or otherwise deemed worthless, any exploration and evaluation asset related thereto shall be impaired and recognised as an expense in accordance with IAS 36.

17. When an entity has discovered commercially viable quantities of mineral reserves but is delaying a decision to develop the resource because the specific area requires major capital expenditure before production can begin, it shall assess the carrying amount of the related exploration and evaluation asset.

Reclassification of exploration and evaluation assets

18. An exploration and evaluation asset shall be reclassified as a development asset when the decision to develop the mineral resource is taken. Exploration and evaluation assets shall be assessed for impairment, and any impairment loss recognised, prior to reclassification.

The Board agreed with the above in principle but asked the staff to reword the paragraphs including removing paragraph 16 above.

Level at which impairment is tested

The Board proposed in ED 6 that entities should be able to test impairment at the level of the cost centre for extractive activities. The staff noted that many respondents disagreed with the proposal. A number of them stated they would prefer to apply the 'cash generating unit' (CGU) definition in IAS 36.

The Board noted that they believed applying the IAS 36 CGU definition would result in impairment being applied at a lower level (such as well by well in an oil field) and that commentators had misinterpreted the proposals in ED 6.

The Board agreed that they did not intend to push impairment in these circumstances down to a well-by-well or similar level but were concerned about the comments received. They requested the staff to discuss the issue with a number of the commentators particularly those using the full cost method.

Effective Date and transition

The staff recommended that the proposed standard be effective for 1 January 2006 and that early adoption be allowed. Staff said this proposal was in response to comments about the 'stable platform' despite the standard being necessary for those jurisdictions applying IFRS for the first time in 2005. The Board agreed.

Transition would follow the normal retrospective approach under IAS 8 except if information is not available, in which case this would need to be disclosed. This could apply, for example, for impairment tests required at 1 January 2004.

The Board agreed that, subject to the above items requiring further investigation, it intends to finalise the standard at the September meeting.