ABSTRACT
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.
TABLE OF CONTENTS
Title Page
Approval Page……………………………………………………………………………... I
Declaration……………………………………………………………………………... II
Dedication……………………………………………………………………………… III
Acknowledgement……………………………………………………………............... IV
Abstract………………………………………………………………………………... V
Table of Contents …………………………………………………………………………VI
List of Tables……………………………………………………………………….. IX
CHAPTER ONE: INTRODUCTION
1.0 Introduction
………………………………………………………………………... 1
1.1 Background of the Study…………………………………………………………... 1
1.2 Statement of Problem …………………………………………………………….. 3
1.3 Objectives of Study………………………………………………………………..
3
1.4 Research
Questions……………………………………………………………... 4
1.5 Research Hypothesis……………………………………………………………… 4
1.6 Significance of the Study………………………………………………………….. 5
1.7 Scope of the Study…………………………………………………………………
1.8 Definition of
Terms………………………………………………………………. 6
CHAPTER TWO:LITERATURE REVIEW
2.0 Introduction……………….……………………………………………………….. 7
2.1 Theoretical
Framework…………………………………………………………. 10
2.2 Conceptual Framework
……………………………………….............................. 14
2.3 Empirical
Framework…………………………………………………………… 21
2.4 Challenges of
Oil and Gas Accounting Practice in Nigeria and Solutions...………..41
2.5 Concept of Best Practices in Accounting
// ………………………………………. 42
2.6 Shell Petroleum Development Company, SPDC: An Overview
.............................. 45
References
……………………………………………………………………….. 49
CHAPTER THREE: METHODOLOGY
3.0 Introduction……………………………………………………………………….. 54
3.1 Area of Study
……………………………………………………………………... 54
3.2 Research Design…………………………………………………………………… 5 4
3.3 Population of Study
………………………………………………………………... 54
3.4 Sample Procedure
and Sampling Size …………………………………………… .55
3.5 Research Instrument
………………………………………………………………… 55
3.6 Method of Data
Collection ………………………………………………………….. 55
3.7 Method of Data
Analysis ……………………………………………………………. 55
3.8 Validation of Instrument
………………………………………………………… …56
CHAPTER FOUR: DATA
PRESENTATION AND ANALYSIS
4.1 Data Presentation and Analysis……………..…………………………………… 57
4.2 Test of Hypotheses
…………………………..…………………………………. 59
4.3 Discussion of Findings
…………………………………………………………... 64
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings……………………………………………………………. 68
5.2 Conclusion………………………………………………………………………. 68
5.3 Recommendations………………………………………………………………… 68
References …….……………………………………………………… 70
CHAPTER ONE
INTRODUCTION
1.0 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.
1.1 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.
1.2 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
1.3 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.
1.4 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?
1.5 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
1.6 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.
1.7 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
1.8 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.