Preparing for a financial statement audit can be an overwhelming task. But there are several simple things you can do to get through your audit this year with minimal frustration: 

 10. Begin working on your schedules well in advance of the audit. And remember, if you have questions, your auditor is just a phone call or email away. 

 9. Keep track of issues you struggled with during the year and communicate those to your auditor. It will help the auditor key in on important areas at the beginning of the audit and prevent surprises down the road. 

 8. Get the confirmations back to the auditors quickly! The more time there is to send these out the better chance we have of getting them back. Every confirmation that’s not returned creates more work for everyone. 

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A survey was recently conducted for the American Petroleum Institute (“API”) that that highlighted many of the common misconceptions about the oil and gas industry. 

The survey found that most Americans continue to underestimate the amount of oil and gas that will be needed to meet future demand as predicted by governmental experts.  It was also noted that most respondents overestimate the role that renewable energy sources will play in the future demand, the amount of oil that is imported from the Middle East and the amount of oil and natural gas industry earnings. 

It is estimated by the Energy Information Administration that the US energy demand will increase 9% during the next 20 years.  The majority of respondents in the survey thought that demand would increase somewhere between 16% and 21%. 

Fossil fuels such as oil, gas, and coal are expected to make up approximately 85% of global energy demand – only 10% of respondents answered this question correctly.

The US Department of Energy estimates that 12% of oil consumed last year in the US was obtained from the Persian Gulf countries.  The majority of respondents in the survey thought that our dependence on fossil fuels from the Persian Gulf countries was over 30%.  Further, according to the DOE, Canada is the largest supplier of imported crude oil and more than 73% of oil and gas consumed in the US is actually produced in North America.

Finally, the oil and gas industry has paid over $242 billion in taxes in the past three years and earns just below $0.06 on every $1 of sales.  Most respondents believed that the industry contributed less than $100 billion or were not sure how much was contributed in taxes over the past three years and thought that the industry earned more than $0.20 per every $1 of sales.

In a previous post, I discussed several issues surrounding joint interest auditing and the joint interest accounting in question. Here are some initial steps once you have considered the necessity of a joint interest audit:

• Review your joint interest agreement and the accounting procedure.  While many of the agreements are standard, ensure you are aware of the audit provisions and other pertinent facts such as the allowed overhead allocation method. The more complexities in the agreement, the more likely there could be errors.
• Consider the size of the interest and amounts at stake.  A joint interest audit will likely produce some results for all wells, but only certain wells would be worth the cost.
• Contact other nonoperating joint owners to share the costs.  Unfortunately for the initiator of the joint audit, you don’t receive all the reward for being diligent on your investment. When an error is found in a joint interest audit, the error is corrected and all affected parties receive remedy even if they didn’t help foot the bill for the audit. This should not necessarily prevent you from pursuing the audit assuming you followed the previous two steps.
• Utilize a professional. The individuals who perform a joint interest audit need to have appropriate training and experience resolving the issues typically uncovered in an audit. Many of the large oil and gas companies have a joint interest audit department and conduct most, if not all, of the procedures themselves. If you do not have those resources or lack the expereince to perform a joint interest audit, engaging an independent auditor may be appropriate. 
• Consider the timing of the audit. Attempting a joint interest audit during the first three months of the year may lead to higher fees, less cooperative staff at the operator, and less timely completion of the audit. When beginning the audit process under any timing, you should prepare for an extended timeline due to the various communications between the auditor and the operator from initial testing all the way down the road to multiple discussions over the reported findings before resolution. 
• Open up communications with other nonoperators and the professional performing the audit. You should consult with the other nonoperators, whether they are participating in the audit or not, about specific concerns related to their joint interest billings. You should communicate their concerns and your own to the professional when engaging them to perform the audit. 

We enjoy partnering with our oil and gas clients in all facets of their business needs. We would be happy to discuss joint interest audits or other accounting services with you.