Accounting for Entities with Oil and Gas Producing Activities

Transcription

1 Accounting for Entities with Oil and Gas Producing Activities Based on the AICPA Audit and Accounting Guide

2 Chapter 1 Overview of the Industry... 1 Learning Objectives... 1 The Industry s History... 1 Development of the Oil Industry... 1 Development of the Natural Gas Industry... 2 Prices for Oil and Gas... 2 Recent Developments in the Oil and Gas Industry... 3 Origin and Accumulation of Oil and Gas... 4 Oil and Gas Reserves... 5 The SEC s Definition of Proved Reserves... 6 The Society of Petroleum Engineers Definitions of Reserves... 7 Determination of Reserves... 8 Operations in the Upstream Petroleum Industry... 9 Oil Sands Sources of Capital and Organizational Structure of Oil and Gas Entities Joint Interest Arrangements Limited Partnerships Royalty Trusts Other Sources of Capital History of Accounting for Oil and Gas Producing Activities International Standards of Accounting for Oil and Gas Review Questions Review Answers Chapter 2 Primary Business Activities of the Industry Learning Objectives Acquisition of Mineral Interests Important Provisions in Lease Contracts Frequently Encountered Transactions for Transferring Mineral Interests Documents and Files Relating to Mineral Interests Basic Concepts of Prospecting and Exploration Activities Prospecting and Exploring for Potential Hydrocarbon-Bearing Structures Other Significant Aspects of Exploration Activities Drilling and Development The Drilling Contract Completing the Well or Plugging and Abandoning the Well Developing the Reservoir The Regulatory Environment Production Workovers Enhanced Recovery Methods Review Questions Review Answers Chapter 3 Accounting for Common Oil and Gas Ownership Arrangements Learning Objectives Ownership Arrangements Ownership Arrangements Mineral Interests Other Arrangements Accounting Models Variable Interest Model ( Variable Interest Entities Subsections of FASB ASC ) Voting Interest Model Special Considerations LLCs... 36

3 Partnerships General Guidance on the Consolidation, Equity, and Cost Methods Consolidation Method Equity Method Cost Method Review Questions Review Answers Chapter 4 Successful Efforts Method and General Accounting for Oil and Gas Activities Learning Objectives General Accounting for Acquisition, Exploration, and Development Costs Acquisition Costs Exploration Costs Development Costs Interest Capitalization Amortization of Capitalized Costs Impairment Tests for Capitalized Costs Unproved Properties Proved Properties Conveyances Accounting for Production Revenue Inventory Operating Expenses Asset Retirements, Environmental Liabilities, Abandonments, Involuntary Conversions, Expropriations, and Joint and Several Liabilities AROs Environmental Liabilities Abandonments Involuntary Conversions Expropriations Joint and Several Liability Arrangements Lease Arrangements Discontinued Operations and Asset Held for Sale Considerations Goodwill and Business Combinations Goodwill Impairment Derivative Commodity Contracts Fair Value Measurement Definition of Fair Value Application to Nonfinancial Assets Application to Liabilities and Instruments Classified in a Reporting Entity s Shareholders Equity Valuation Techniques Present Value Techniques The Fair Value Hierarchy Fair Value Disclosures Disclosure Requirements for Oil and Gas Entities General Accounting Policy Disclosures Suspended Well Disclosures FASB ASC 932 Disclosures Other Disclosure Matters Additional Disclosures for Entities Following the Full Cost Method of Accounting SEC Disclosures Subpart 1200 of Regulation S-K Exchange Offer Disclosures Review Questions Review Answers ii

4 Chapter 5 Full Cost Method of Accounting for Oil and Gas Activities Learning Objectives General Accounting for Acquisition, Exploration, and Development Costs Capitalization of Interest Amortization of Capitalized Costs Excluded Costs Impairment Tests for Capitalized Costs Cost Center Ceiling Test Applications Involving a New Country Accounting for Production Asset Retirements, Environmental Liabilities, Abandonments, Involuntary Conversions, and Expropriations Abandonment of Unevaluated (Unproved) Properties Revisions and Settlements of AROs Fair Value Measurements Lease Arrangements Conveyances Discontinued Operations Goodwill Goodwill Property Disposals Other Matters Management Fees and Other Income Commodity Derivative Activities Disclosure Requirements Additional Disclosure Requirements for Full Cost Entities Review Questions Review Answers Chapter 6 Accounting for International Oil and Gas Activities Learning Objectives Overview International Contractual Arrangements Concessions Production Sharing Contracts Service Contracts Other Arrangements Royalty, Production Taxes, and Income Taxes Royalty Production Tax Income Tax Reporting International Proved Reserves Asset Retirement Obligations in International Operations The Foreign Corrupt Practices Act of Review Questions Review Answers Chapter 7 Tax Considerations Learning Objectives General Income Taxes Intangible Drilling and Development Costs Depletion Common Temporary Differences Conveyances Accounting for Temporary Differences in Asset Acquisitions FASB ASC Uncertain Tax Positions iii

5 Net Operating Losses Valuation Allowances Other Common Tax Matters Ad Valorem and Severance Taxes EOR Credit (Section 43) Credit for Production of Oil and Gas from Marginal Wells (American Jobs Creation Act of 2004) Deduction for Income Attributable to Domestic Production Activities International Operations U.S. Foreign Tax Credit Taxes in Foreign Jurisdictions Review Questions Review Answers Chapter 8 Auditing Learning Objectives Overview Planning Related Auditing Considerations Objectives of the Auditor The Importance of Exercising Professional Skepticism Audit Planning Audit Risk Determining Materiality and Performance Materiality When Planning and Performing an Audit Use of Specialists The Use of Assertions When Identifying and Assessing the Risks of Material Misstatement Understanding the Entity, Its Environment, and Identifying and Assessing the Risks of Material Misstatement Risk Assessment Procedures Industry, Regulatory, and Other External Factors Nature of the Entity and Its Operations Understanding of Internal Control Assessment of Risks of Material Misstatement and the Design of Further Audit Procedures Assessing the Risks of Material Misstatement Designing and Performing Further Audit Procedures Auditing Accounting Estimates and Related Disclosures Evaluating the Sufficiency and Appropriateness of the Audit Evidence Obtained Written Representations from Management Evaluating Misstatements Identified During the Audit Additional Audit Considerations Audit Documentation Audit Evidence Communication With Those Charged With Governance Additional Considerations for Specific Audit Areas Oil and Gas Properties Acquisition, Exploration, and Development Activities Depreciation, Depletion, and Amortization Impairment Oil and Gas Property Conveyances Production Payables Asset Retirement Obligations Tax and Other Regulatory Matters Derivatives and Hedging Activities Auditing Fair Value Measurements Other Audit Considerations Statement of Cash Flows Commitments and Contingencies Risks and Uncertainties Related Parties Supplementary Oil and Gas Reserve Disclosure Considerations and Related Procedures iv

6 Reserve Quantity and Value Disclosures Supplementary Oil and Gas Reserves Procedures Review Questions Review Answers Chapter 9 Internal Control Considerations Learning Objectives Introduction Definition of Internal Control and Internal Control Framework Internal Control Framework Internal Control Over Financial Reporting Internal Control Considerations for Audit of a Nonpublic Entity Reporting Requirements for a Public Entity Evaluating the Effectiveness of Internal Control by Management Components of Internal Control Common Control Activities for Oil and Gas Entities Acquisition of Mineral Interests Exploration and Development Activities Exploration, Development, and Production Nonoperator Production Other Control Areas Computer-Based Controls Control Over Financial Statement Disclosures Specific to Oil and Gas Entities Control Over Compliance With Tax and Regulatory Requirements Review Questions Review Answers Appendix A Guidance Updates Appendix B Clarified Auditing Standards and PCAOB Standards Appendix C Summary of the Successful Efforts and Full Cost Methods of Accounting Appendix D Sample Management Representations for Entities With Oil and Gas Producing Activities Appendix E International Financial Reporting Standards Glossary and Other Commonly Used Industry Terms Index of Pronouncements and Other Technical Guidance Index v