Accounting choices and their determinants in Oil and Gas Activities of Global Major Companies
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Date
2019-01
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Business Management Review
Abstract
One of the two objectives of this study was to determine whether there is significant variation
in accounting treatment choice of oil and gas activities of major oil and gas companies, and
the second objective was to identify critical factors for accounting choice. To achieve the
objectives, the study collected data from 25 major oil and gas companies using a checklist of
items (index) which was used to review accounting policies covered by the financial
statements of these companies. The data collected was analysed using both descriptive and
inferential statistics whereby non-parametric tests were used. The study findings show that in
case of accounting treatment choices, there are significant variations in accounting treatment
on oil and gas activities. In case of determinants, the study found that company size has
influence on initial measuring decommissioning liability, using proved reserves as basis for
unit of production, using fair value as well as recognition of both cash payments and value of
future assets in case of unproven reserves. Company location was found to have influence on
use of LIFO to value inventories, not recognising deferred taxes at initial recognition of
decommissioning liability, use of proved reserves as a basis for unit of production,
recognition cash payments received only in case of unproven reserves, as well as application
of successful efforts method. Duration was found to influence the use of reducing balance
method to depreciate its assets as well as not recognising deferred taxes at initial recognition
of decommissioning liability. The study suggests that accounting standard setters have to
strike a balance between harmonisation and accounting flexibility, to ensure that accounting
data is both comparable and informative.
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Keywords
full cost method, successful efforts method, accounting choices, oil and gas accounting, non-parametric tests