Discretionary Accounting Changes from "Successful Efforts" to "Full Cost" Methods: 1970-76.

Abstract ABSTRACT: This note extends previous research on accounting method choice in the petroleum industry by examining the association between selected attributes of "successful efforts" firms and the decision to change to "full cost" accounting. Firms that changed to full cost are found to exhibit higher levels of financial risk (leverage) and exploration activity (capital expenditures) when compared to firms that retained successful efforts, and these differences are shown to predate full cost adoption by several years. Tests also indicate that the change to full cost is associated with concurrent increases in debt financing and exploration investment.