Impact of Oil and Gas Accounting on Accounting Practice in Nigeria (a Study of Shell Nigeria Plc)
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Abstract on Impact of Oil and Gas Accounting on Accounting Practice in Nigeria: (a Study of Shell Nigeria Plc)
This study examines the impact of oil and gas accounting and reporting on the organisation and to the Nigerian accounting practice using Shell Development Petroleum Company as a case study. The study was conducted using the Chi-square. The elements were selected by means of random and stratified sampling technique. Data were gathered from primary and secondary sources. Data collected were presented using tables and analyzed using the Chi-square analysis. It was found from the study that Oil and gas accounting practice in Nigeria is standardized in line with International Financial Reporting Standard; the challenges facing oil and gas accounting in Nigeria is low while the prospect of oil and gas accounting is high
The study recommended that the International Financial Reporting Standard be adopted by countries that are yet to standardized their oil and gas accounting information. It also recommended that oil and gas accounting software be developed in line with the IFRS requirements and standards to ease the complexities involved in the nature of oil and gas accounting.
Chapter One of Impact of Oil and Gas Accounting on Accounting Practice in Nigeria: (a Study of Shell Nigeria Plc)
INTRODUCTION
Accounting regulatory bodies usually formulate industry specific standards when an industry has peculiar characteristic of accounting for banks and non-bank financial institutions.
The oil and gas industry is one of such industries that has specific accounting standards. This can be attributed to its peculiarity interms of high capital requirement, earning volatility, regulation, type of business ownership, taxation, non-correlation between the amount of investment made and returns obtained (Wright and Hallun et al, 2008) and high sensitive to risk – price risk and foreign exchange risk.
Before 2012 when the International Financial Reporting Standard (IFRS) was adopted by exploration companies in Nigeria, Nigerian companies in the upstream sector prepared their financial statements in line with the statement accounting standard 14 (accounting in the petroleum industry; upstream activities) and SAS 17 (accounting in the petroleum industry) formulated by the Nigerian Accounting Standard Board.
With its adoption of IFRS, Nigeria joined over 100 countries that either use or have adopted the accounting guidelines as stipulated by the International Accounting Standard Board (IASB). This will ensure harmony and easy comparison of financial statements. This is particularly useful in the oil and gas industry considering that it is one of the most global industries. The adoption of a common accounting framework also widens access to investment opportunities.
BACKGROUND OF THE STUDY
The oil and gas industry is one of such industries that has specific accounting standards. This is as a result of its peculiarity in terms of high capital requirement, earnings violability, regulation, type of business ownership, taxation, non-correlation between the account of investment made and returns obtained (Wright and Gullen et al, 2008) and high sensitivity to risk like price risk and foreign exchange risk etc.
Therefore, when the international Financial Reporting Standards (IFRS) was adopted by exploration companies in Nigeria, it became imperative for oil and gas companies in the sector to prepare financial statements in line with the statement of accounting standards.
Upstream oil and gas organizations must meticulously record, track, distribute and report sales of oil and gas and other products. Accurate and timely oil and gas revenues accounting require tracking complex contracts and owner lease agreements. It must also reflect joint venture and capital expenditure accounts among others.
The nature of the complexity of the oil and gas operations makes the nature of its accounting reporting even more complex by new challenges such as horizontal drilling etc.
The research, therefore, intends to explore the nature of oil and gas accounting in Nigeria, challenges and solutions.
STATEMENT OF THE PROBLEM
The complex nature of the operations of the upstream oil and gas industry makes the oil and gas accounting more complex in nature. However, the International Financial Reporting Standards (IFRS) requires that oil and gas companies in the upstream sector prepare their financial statement in-line with the statement of accounting standards 14 (accounting in the petroleum industry; upstream activities) andSAS 17 (accounting in petroleum) formulated by the Nigerian Accounting Standard Board. This is as a result of the guidelines stipulated by the International Accounting Standard Board (IASB)
However, oil and gas accounting is made increasingly difficult by new challenges and risks such as horizontal drilling, price risk, foreign exchange risk etc. Research work into the various accounting standards needed in this particular industry have not been detailed and thorough.
This research seeks to investigate the practice of oil and gas accounting in Nigeria, understand its operation and determine what extent it has been standardized to help move the industry forward to international standards
OBJECTIVES OF THE STUDY
The study seeks the following objectives:
1. To determine if oil and gas accounting is standardized in Nigeria
2. To examine the challenges of oil and gas accounting in Nigeria and proffering solutions
3. To evaluate the prospects of oil and gas accounting in Nigeria.
RESEARCH QUESTIONS
The following research questions were formulated:
1. Is oil and gas accounting standardized in Nigeria?
2. Are there challenges in oil and gas accounting in Nigeria?
3. Are there prospects for oil and gas accounting in Nigeria?
RESEARCH HYPOTHESIS
Hypotheses are usually gotten from research questions/problems and can be regarded as tentative solutions to research questions. Therefore, the researcher will test the following hypotheses
H1 Oil and gas accounting practice is standardized in Nigeria
H2 There are no challenges in oil and gas accounting in Nigeria
H3 Oil and gas accounting has huge prospects in Nigeria
SIGNIFICANCE OF THE STUDY
1. It will help oil and gas companies know what relevant accounting standards they need to be up to standard in the Nigerian reporting environment.
2. it will help relevant agencies know what is expected from oil and gas companies in terms of accounting reporting
3. It shall serve as reference material for accounting professionals and practitioners seeking more knowledge.
4. It shall serve as a basis for further study.
SCOPE OF THE STUDY
The study seeks to evaluate the impact of oil and gas accounting practice in Nigeria and Shell Nigeria was used as the case study for this research
DEFINITION OF TERMS
Accounting: Accounting is the systematic and comprehensive recording of financial transactions pertaining to a business, and it also refers to the process of summarizing, analyzing and reporting these transactions to relevant regulating agencies and tax collection entities.
Oil and Gas: Oil and natural gas are naturally occurring chemicals that are made up of just two elements — carbon and hydrogen.
Accounting Practice: This is the system of procedures and controls that an accounting department uses to create and record business transactions. Accounting practice should ideally be extremely consistent, since there are a large number of business transactions that must be dealt with in exactly the same manner in order to produce consistently reliable financial statements.
IFRS: International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements.
IASB: The International Accounting Standards Board (IASB) is an independent, private-sector body that develops and approves International Financial Reporting Standards (IFRSs). The IASB operates under the oversight of the IFRS Foundation.
SAS: SAS (Statistical Analysis System) is a software suite developed by SAS Institute for advanced analytics, multivariate analyses, business intelligence, data management, and predictive analytics. SAS was developed at North Carolina State University from 1966 until 1976, when SAS Institute was incorporated.
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