The AASB and IASB have significant ongoing projects including a comprehen sive “Extractive Industries” project that could affect the differences between current Australian GAAP and A-IFRS as described above an 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 cir cumstances in those years. Annual Report 2004 87 Testing of non-current assets for impairmen t will be undertaken on the smallest grouping of assets generating cash flows, called cash generating units. Wher 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 in cluding exploration, evaluation and development expenditure to their recoverable amount. Any initial impairmen t 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 Reportin g Standard (“IFRS”) which comprehensively deals with the accounting and reporting issues specific to the extr active 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 whi ch 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 an d evaluation expenditure. This standard is the Australian equivalent to IFRS 6 issued by th 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 ar e satisfied: (a) the rights to tenure of the area of inter est are current; and (b) at least one of the following condition s is also met: (i) the exploration and evaluation ex penditures are expected to be recouped through successful development and exploitation of the area of in terest, or alternatively, by its sale; or (ii) exploration and evaluation activiti es 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 operati ons 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 th lateness of the issuance of the Australian equivalent accounting standard AASB 6, Santos will be required to apply th e standard from 1 January 2005. Santos is currently evaluating this accountin g standard and its accounting policy for exploration and evaluation expenditure. At the date of this report, no d ecision has been made as to how the Santos Group will account for exploration and evaluation expenditure und er the IFRS conceptual framework commencing 1 January 2005. Exploration and  evaluation expenditure Under A-IFRS the cost of employee remuner ation provided in the form of equity-based remuneration (including shares and options) will be measured based on the fair value of those instruments and amortised to the profit and loss over the vesting period. Equity-based payments The majority of the controlled entities within the Santos Group that have petroleum operations in foreign jurisdictions will have the US dollar as their functional currency. The first time application of A-IFRS will result in the net assets of those foreign controlled en tities to be translated from their US dollar functional currency to Australian dollars using the spot rate at 1 J anuary 2004. The differences arising from the initial application of this accounting standard will be reflected in th e foreign currency translation reserve at 1 January 2004. Functional currency Restoration liabilities will be discounted to present value and capitalised as a component part of capitalised exploration and development expenditure an d property, plant and equipment. The capitalised cost is to be amortised over the life of the assets and the provision is accreted periodically to the profit and loss as the discounting of the liability unwinds. Restoration liabilities Defined benefit superannuation plan surpluses and deficits will be recognised in the statement of financial position and the changes in these values each peri od will be recognised either directly in the statement of financial performance, progressively using a “corrid or” approach or directly in retained earnings. The effective date of this standard is 1 January 2006, however th Company is allowed to adopt earlier at 1 January 2005. Defined benefit superannuation surplus  and deficits Deferred tax assets and liabilities will gener ally be based on the differences between the accounting and tax basis of assets and liabilities under the “balance sheet” approach which will result in the recognition of additional deferred tax assets and liabilities. Deferred tax assets and liabilities 35. Australian Equivalents to International Financial Reporting Standar ds (continued)