A Look at Accounting Principles Used by Oil and Gas Producers.

Abstract The article presents a survey of accounting policies and practices of sixty-one oil companies in the U.S. in dealing with costs of acquiring and developing oil and gas properties. The study revealed inconsistency in the industry and in some cases apparent disregard for financial accounting principles. The wide variations among companies in accounting for similar transactions are classed by individual practices regarded by its' proponents as being the correct one. The article points out some specific examples of unwarranted inconsistencies within the industry in accounting for leasehold, exploration and development costs. It also presents an outline some of the basic points that must be considered in selecting from the various optional practices a proper accounting treatment for most situations arising in the petroleum producing business. Each oil producer places emphasis on some one consideration, which determines the company's accounting policies and principles. However omnipotent this one consideration may be, though, the firm cannot completely ignore other factors that are also of prime importance. Five of these factors are federal income tax considerations, practicality and simplicity, conservatism, consistency and theoretical correctness.