How to Test and Record an E&E Asset Impairment When Indicators Arise Under IFRS 6
Writing down an E&E asset when facts and circumstances suggest the carrying amount may exceed the recoverable amount.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Impairment Loss — E&E Assets | Expense (+) | 3,000,000.00 | - |
| Exploration & Evaluation Assets (E&E) | Asset (-) | - | 3,000,000.00 |
💡 Accountant's Note
IFRS 6 requires E&E assets to be tested for impairment when facts and circumstances suggest the carrying amount may exceed the recoverable amount — e.g., licence expiry approaching, no plans to develop, or the area is being relinquished.
Practitioner & Systems Framework
💻 ERP Architecture
Maintain an E&E asset register organized by licence block with expiry dates flagged for advance review (typically 12 months before expiry). At each reporting date, assess each block against IFRS 6 impairment indicators: (a) licence period is expiring and renewal is not expected, (b) no further E&E expenditure is budgeted for the area, (c) E&E in the area has not led to discovery and the company has decided to discontinue, or (d) sufficient data exists to assess commerciality but the project is not commercially viable. If any indicator is present, perform a full impairment test. The E&E CGU for impairment is typically the individual exploration block.
⚠️ Audit Flags
E&E impairment is a high-risk area because management has significant discretion over the assessment of commerciality. Auditors will examine board papers, budgets, and management communications to identify E&E assets where impairment indicators exist but no impairment has been recorded. Licence expiry dates approaching within 12 months without active renewal discussions are particularly scrutinized. Auditors may also request an independent geological assessment to validate the E&E asset carrying value.
📄 Required Documentation
E&E asset register with licence expiry dates, exploration budget for the upcoming period by block, geological assessment of the block's prospectivity, licence renewal status (correspondence with the host government), management's written assessment of impairment indicators per block, and any independent Competent Person's Report.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
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