The International Accounting Standards Board (IASB) recently released an exposure draft of the small and medium sized entities version of IFRS. Will you be required to adopt these standards? The simple answer is we don’t know at this point. Here are some things to consider as we wait to see:
- Do you account for oil and gas properties under the full cost method? You may not be allowed to under IFRS.
- Is your accounting staff sufficient to understand the changes and the impact on your business, and if not, how do I accomplish this? You may be able to hire an accounting firm to consult and evaluate your current accounting compared to IFRS.
- When will this possible conversion be required? By most reports, the switch to IFRS could be as early as 2013.
International standards would have a significant affect particularly on oil and gas companies.
Under current International Financial Reporting Standards (IFRS), oil and gas companies would need to make drastic changes in their accounting methods. In their current form, IFRS does not have specific standards for any individual industries. Based on the conceptual framework, the current standards would not allow full cost accounting for oil and gas properties. The framework allows capitalization of assets when you are able to predict the probable future economic benefits as a consequence of the investment, which may be difficult in exploration when you consider the amount of unproved assets.
The International Accounting Standards Board (IASB) is currently working on a project to better address the complexities of oil and gas. The project is also addressing issues of fair value reporting of reserves on the balance sheet. This project may address the asset issue, but ultimately not address issues such as joint ownership arrangements, which are also integral to oil and gas property accounting.
Check back for periodic updates.Categories: Accounting Practices, Controller's Corner, Financial Reporting
Tags: full cost, IFRS