Carbon offsets usually don’t have an expiry date. If the entity holds carbon offsets only for investment purposes (that is, capital appreciation) over an extended period of time, their useful life may be considered indefinite. However, their useful life will be considered finite if they are held to be sold within a short period of time outside of the entity’s ordinary course of business. When carbon offsets are held for voluntary use, each offset has a limited usage of one retirement. In such cases, their useful life will also be considered finite.

Carbon offset intangible assets considered to have indefinite useful life need to be tested annually for impairment. Different types of carbon offset intangible assets may be tested for impairment at different times. However, carbon offset intangible assets initially recognised during the current annual period should be tested for impairment before the end of the current annual period.

For carbon offset intangible assets considered to have finite useful lives, entities should assess, at each reporting date, whether there is any indication that carbon offsets held for use might be impaired.

Carbon offsets held for voluntary use with no constructive obligation usually do not generate cash inflows that are largely independent from other assets. Entities should identify the cash-generating unit (CGU) that the carbon offsets belong to, considering the intended retirement of the offsets. For example, if the carbon offsets are intended to be retired against the emissions of a specific operation identified as a CGU for impairment testing purposes, value in use should be determined for that operation.

Carbon offsets that are part of general net zero commitments may meet the definition of corporate assets under IAS 36. This is because they are likely to contribute to future cash flows of multiple CGUs. They should be tested for impairment by applying the approach prescribed in IAS 36.102.

Other carbon offset intangible assets that are not held for use (for example held for investment purposes over an extended period of time, or sold within a short period of time outside of the ordinary course of business) generate independent cash inflows at the individual asset (unit) level and should be tested for impairment separately. Carbon offsets that meet the definition of inventories (see FAQ 3.2.1) are measured at the lower of their cost and net realisable value under IAS 2.