The document discusses the level at which entities should assess exploration and evaluation assets for impairment. Specifically: 1. PSAK 64 provides flexibility in impairment testing compared to other standards, allowing impairment to be assessed at a level comprising one or more cash-generating units, rather than the smallest unit. 2. Entities have policy choice in determining the appropriate level, which may depend on how production sharing contracts are expected to generate cash flows. 3. Exploration and evaluation assets can be aggregated into portfolios based on attributes like resource type, location, or size, with the entire portfolio acting as a single cash-generating unit.

1. Indonesia Audit Advisory
Vol. 21
04 November 2013
Connecting the Dots
Level to Assess Impairment on
Measurement of Exploration and
Evaluation Asset
Impairment must be considered for exploration and evaluation assets. However, due to the special nature of exploration and
evaluation assets, PSAK 64, Exploration for and Evaluation of Mineral Resources sets out specific requirements which limit
the need to test for impairment to circumstances when there are indicators of impairment (see paragraph 20 of PSAK 64).
This is true in all circumstances except when exploration and evaluation assets are reclassified.
In many cases, an entity engaged in the exploration and evaluation phase of a project will not be generating cash inflows
from the project. Frequently, the exploration and evaluation activities have not even reached a stage where there is enough
information to estimate the future cash flows that might be eventually generated by the project.
In relation to the above facts, the problem raised on how the entity determines the level they should assess for impairment at
exploration and evaluation phase (please see below illustration).
PSC Contracts
Area of Interest 1 Area of Interest 2
An entity should determine an accounting policy for allocating exploration and evaluation assets to cash-generating units or
groups of cash-generating units for the purpose of assessing such assets for impairment. Each cash-generating unit or group
of units to which an exploration and evaluation asset is allocated should not be larger than an operating segment determined
in accordance with PSAK 3, Operating Segments. The level identified by the entity for the purposes of testing exploration and
evaluation assets for impairment may comprise one or more cash-generating units. The decision in determining the level at
which the impairment assessed depend on how PSC contracts will generate cash inflow. Different PSC contract may result in
different level of assessment.
Drilling
site
1
Drilling
site
2
Drilling
site
3
Drilling
site
4
Level 1
Level 2
Level 3

2. The impairment testing requirements within PSAK 64 provide some flexibility compared to the requirements of PSAK 48,
Impairment of Assets. Under PSAK 64 paragraph 21, the level at which impairment testing is performed is a matter of
accounting policy choice and may comprise one or more cash-generating units – it need not be the smallest identifiable
group of assets that generates largely independent cash inflows. Management should consider carefully what the
appropriate level of monitoring and reporting is for the entity in order to ensure that the financial statements provide
reliable and relevant information that properly reflects the true economic nature of the entity.
Once the entity establishes its policy for determining cash-generating units, the allocation of exploration and evaluation
assets should be carried out. The amounts allocated should include not only the assets, but also, in the calculation of fair
value less costs of disposal, liabilities such as provisions for decommissioning costs and remediation, to the extent they
would be transferred with the assets.
An entity might choose to aggregate exploration and evaluation sites into a portfolio based on attributes that are
determined as an accounting policy choice. For example, an entity might choose to aggregate sites by type of resource,
geographical location, size etc. It is possible, although unlikely, that all sites might be aggregated into one group of cash-
generating units (as long as it is not larger than an operating segment); at the other end of the spectrum, an entity might
choose to identify each site that met the test of being a cash-generating unit on a stand-alone basis.
When the specific requirements of PSAK 48 paragraph 109-123 are met, entities are required to reverse previously
recognised impairment losses.
The information above does not attempt to capture all the relevant information related to assessment of Impairment on
measurement of exploration and evaluation asset. This publication is not a substitute for reading the applicable standards,
and should not be used as a basis for any decision or action that may affect your clients. Before making any decision or
taking any action that may affect your clients, please consult accordingly.

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