Board members noted at a previous meeting that IAS 36 paragraph 22 requires impairment to be assessed at the individual asset level "unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets". In addition, IAS 36 paragraph 70 requires that "if an active market exists for the output produced by an asset or group of assets, that asset or group of assets shall be identified as a cash-generating unit". In some cases in which exploration and evaluation assets are recognised, for example in the petroleum sector, each well is capable of producing future cash inflows that are observable and capable of reliable measurement because there is an active market for crude oil. The Board was concerned that respondents might not have appreciated this application requirement fully (because of a lack of familiarity with IAS 36). The Board directed the staff to investigate this further.

The staff highlighted this concern in the July 2004 issue of IASB Update, in the Website project summary, and in the Effect of Redeliberations document (also on the Website). These materials were sent to the IASB's research project team and the UK's Oil Industry Accounting Committee (OIAC) with a request that their constituents be encouraged to respond to the issues raised. The staff received 16 comment letters.

Staff advised the Board that there was broad support for the revised approach to the assessment of impairment - the facts and circumstances approach. The Board's revised approach was seen as a sensible and pragmatic solution and one that would assist on-going comparability with existing practice in many countries.

In view of the above, staff proposed an approach that requires management to allocate exploration and evaluation assets to an appropriate unit of account and test impairment at this level. The staff considered that the approach taken by the Board to the impairment of goodwill in its 2004 revisions to IAS 36 paragraphs 80-82 offered the best model available within IFRSs to accomplish this objective. Using the analogy provided above, this might be an oil field or a contiguous ore body. The unit of account might be the same as an area of interest but might not be. Since the proposal would permit CGUs to be aggregated, the staff has mirrored the goodwill requirements in IAS 36 and proposed that the unit of account can be no larger than a segment, based on either the entity's primary or secondary segment reporting format under IAS 14 Segment Reporting. This requirement is no less rigorous than ED 6's requirement that the special CGU "be no larger than a segment".

The Board agreed with this proposal.

Other issues arising from the pre-ballot draft standard resulted in the following staff proposals:

• IFRS 6 paragraph 8 ["Exploration and evaluation assets shall be measured at cost"] be raised to a bold letter principle. This would also be consistent with the paragraphs on initial recognition in IAS 16 (paragraph 15) and IAS 38 (paragraph 24).
• The Board's proposals not be re-exposed and that the Board proceed directly to finalise the IFRS. The reasons for this being that:
  • 1. No fundamental changes of principle have been made; and
  • 2. Where changes have been made to ED 6, they have been made to matters addressed in the invitation to comment on which constituents' comments were invited. The Board has considered the comments received and the basis for alternatives suggested by constituents and as a result of its own redeliberations. It is doubtful that re-exposure would yield any new information that has not already been shared with the Board.

The Board agreed with the staff on both issues.

A ballot Draft will be submitted to the Board in October. Four Board members indicated their intention to dissent on the basis that the IFRS contradicts the hierarchy requirements in IAS 8. The IFRS would be published in November 2004.