Annual Report 2004 87
35. Australian Equivalents to International Financial Reporting Standards (continued)
The AASB and IASB have significant ongoing projects including a comprehensive “Extractive Industries” project that could affect the differences
between current Australian GAAP and A-IFRS as described above and could further impact the Santos Group’s financial reports in future years. The
future impacts of any new or amended A-IFRS will depend on the particular circumstances in those years.
Testing of non-current assets for impairment will be undertaken on the smallest grouping of assets generating cash
flows, called cash generating units. Where there is an indication that a cash generating unit is impaired, the
impairment is to be measured by reference to either the cash generating unit’s discounted future net cash flows, or
its estimated fair value less costs to sell. Upon initial application of this standard, such testing is likely to result in
write-downs of some non-current assets including exploration, evaluation and development expenditure to their
recoverable amount. Any initial impairment write-down may reverse in subsequent periods if there were a change in
the estimates used to determine the initial write-down. The impacts of this new requirement will, in part, depend
on the accounting policy adopted for accounting for exploration and evaluation expenditure referred to above.
Impairment
There is no International Financial Reporting Standard (“IFRS”) which comprehensively deals with the accounting
and reporting issues specific to the extractive industries. In the absence of such an industry-based IFRS, companies
operating in the extractive industries will be required to determine their own accounting policy for accounting for
exploration and evaluation expenditure which is compatible with the IFRS conceptual accounting framework
definition of assets and expenses. Generally this will require exploration and evaluation expenditures to be expensed
unless they lead to a successful discovery of economic value.
Pending the completion of a comprehensive project on accounting for extractive industries, AASB 6 “Expenditure for
and Evaluation of Mineral Resources” was issued in December 2004 to facilitate the introduction of A-IFRS in
respect of the treatment of exploration and evaluation expenditure. This standard is the Australian equivalent to
IFRS 6 issued by the IASB in December 2004, and will require exploration and evaluation expenditure incurred in
each area of interest to either be expensed as incurred or to be partially or fully capitalised and recognised as an
asset so long as the following conditions are satisfied:
(a) the rights to tenure of the area of interest are current; and
(b) at least one of the following conditions is also met:
(i) the exploration and evaluation expenditures are expected to be recouped through successful development
and exploitation of the area of interest, or alternatively, by its sale; or
(ii) exploration and evaluation activities in the area of interest have not at the reporting date reached a stage
which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves,
and active and significant operations in, or in relation to, the area of interest are continuing.
The IASB decided that the effective date of IFRS 6 to be 1 January 2006 to allow affected companies more time to
make the transition to IFRS. Despite the lateness of the issuance of the Australian equivalent accounting standard
AASB 6, Santos will be required to apply the standard from 1 January 2005.
Santos is currently evaluating this accounting standard and its accounting policy for exploration and evaluation
expenditure. At the date of this report, no decision has been made as to how the Santos Group will account for
exploration and evaluation expenditure under the IFRS conceptual framework commencing 1 January 2005.
Exploration and 
evaluation expenditure