What do you do with millions spent drilling for oil 🛢️ or searching for gold 🪙 — before you even know if anything is there?

In this episode 🎙️, we explore IFRS 6 — the standard that lives in the gray zone between hope and proof.

Exploration accounting is about uncertainty. And IFRS 6 gives companies flexibility — but not a free pass.

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Key subjects covered in this episode:

• The Scope Boundary 🗺️

IFRS 6 applies:

✔️ After the entity has the legal right to explore

❌ Before technical feasibility and commercial viability are demonstrated

Before legal rights? Expense it.

After feasibility? Move to the next accounting framework.

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• Capitalization Choices 🧾

Entities can develop an accounting policy for what qualifies as an Exploration & Evaluation (E&E) Asset.

Examples may include:

• Drilling costs ⛏️

• Geological studies 🧭

• Stripping costs

• Topographical surveys 📊

Flexibility exists — but consistency is required.

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• Measurement Rules 💰

E&E assets are measured at cost.

However, impairment testing differs from a normal machine under IAS 16.

The risk profile is higher. So the impairment model is tailored.

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• The “Trigger” Test 🚨

IFRS 6 provides specific impairment indicators, such as:

• Exploration rights expiring

• No planned budget for further exploration

• Data indicating no commercially viable reserves

• Decision to abandon the area

These signals trigger impairment testing.

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• Classification 🏗️

Exploration assets can be:

✔️ Tangible (e.g., drilling equipment)

✔️ Intangible (e.g., exploration licenses)

Classification depends on nature — not the project.

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• The Transition Point 🔄

Once technical feasibility and commercial viability are demonstrated:

👉 IFRS 6 no longer applies.

👉 Assets move to IAS 16 (PPE) or IAS 38.

But not before one critical step…

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🔥 A Pro-Tip for your SOCPA Prep

The biggest trap is the Impairment Transition Rule 🎯.

Under IFRS 6:

✔️ Impairment can be tested at a higher level (Area of Interest) — not necessarily at a full Cash-Generating Unit level like under IAS 36.

But the moment commercial viability is proven:

👉 You must perform an impairment test under IAS 36

👉 Before reclassifying the asset

Miss that final “exit test,” and you lose the question.

IFRS 6 is about managing uncertainty responsibly.

Capitalize hope — but test it rigorously before declaring victory.