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Audit and Accounting Guide: Entities With Oil and Gas Producing Activities, 2018

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Audit and Accounting Guide: Entities With Oil and Gas Producing Activities, 2018

AICPA

ISBN: 978-1-948-30622-5 October 2018 320 Pages

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Description

First update in 4 years!  As fluctuating oil prices, off-shore drilling, and other energy-related issues impact the way your clients conduct business, it i essential to have a keen understanding of the domestic and international topics and trends facing the oil and gas industry today. This 2018 edition includes over 200 pages of invaluable guidance to help accountants improve their industry knowledge, fine-tune their strategies, and provide high-quality services to their clients. This publication provides important technical guidance, summarizes new standards and practices, and delivers "how-to" advice for handling audit and accounting issues that will be critical to your success.

Key Features of this title are:

  • An updated illustrative representation letter that contains industry-specific representations.
  • Discussion and interpretive guidance associated with FASB ASC 606, Revenue from Contracts with Customers

Chapter Paragraph

1 Overview of the Industry 01-78

The Industry’s History 01-20

Development of the Oil Industry 02-07

Development of the Natural Gas Industry 08-10

Prices for Oil and Gas 11-13

Recent Developments in the Oil and Gas Industry 14-20

Origin and Accumulation of Oil and Gas 21-29

Oil and Gas Reserves 30-48

The SEC’s Definition of Proved Reserves 33-37

The Society of Petroleum Engineers’ Definitions of Reserves 38-40

Determination of Reserves 41-48

Operations in the Upstream Petroleum Industry 49-56

Oil Sands 54-56

Sources of Capital and Organizational Structure of Oil and Gas Entities 57-66

Joint Interest Arrangements 60

Limited Partnerships 61-63

Royalty Trusts 64-65

Other Sources of Capital 66

History of Accounting for Oil and Gas Producing Activities 67-76

International Standards of Accounting for Oil and Gas 77-78

2 Primary Business Activities of the Industry 01-100

Acquisition of Mineral Interests 01-48

Important Provisions in Lease Contracts 10-28

Frequently Encountered Transactions for Transferring Mineral Interests 29-39

Documents and Files Relating to Mineral Interests 40-48

Basic Concepts of Prospecting and Exploration Activities 49-67

Prospecting and Exploring for Potential Hydrocarbon-Bearing Structures 53-60

Other Significant Aspects of Exploration Activities 61-67

Drilling and Development 68-88

The Drilling Contract 77-80

Completing the Well or Plugging and Abandoning the Well 81-85

Developing the Reservoir 86-87

The Regulatory Environment 88

Production 89-100

Workovers 97-98

Enhanced Recovery Methods 99-100

3 Accounting for Common Oil and Gas Ownership Arrangements 01-27

Ownership Arrangements 01-04

Ownership Arrangements — Mineral Interests 02

Other Arrangements 03-04

Special Considerations 05-08

LLCs 05

Partnerships 06-08

Accounting Models 09-19

Variable Interest Model ("Variable Interest Entities" Subsections of FASB ASC 810-10) 12-15

Voting Interest Model 16-19

General Guidance on the Consolidation, Equity, and Cost Methods 20-27

Equity Method 20-26

Cost Method 27

4 Successful Efforts Method and General Accounting for Oil and Gas Activities 01-163

General 01-08

Accounting for Acquisition, Exploration, and Development Costs 09-23

Acquisition Costs 09

Exploration Costs 10-16

Development Costs 17-22

Interest Capitalization 23

Amortization of Capitalized Costs 24-30

Impairment Tests for Capitalized Costs 31-40

Unproved Properties 32-36

Proved Properties 37-40

Conveyances 41-50

Accounting for Production 51-70

Revenue 52-62

Inventory 63-67

Joint Operating Agreements — Operating Expenses 68-70

Asset Retirements, Environmental Liabilities, Abandonments, Involuntary Conversions, Expropriations, and Joint and Several Liabilities 71-90

AROs 71-78

Environmental Liabilities 79

Abandonments 80-81

Involuntary Conversions 82-87

Expropriations 88

Joint and Several Liability Arrangements 89-90

Lease Arrangements 91-92

4 Successful Efforts Method and General Accounting for Oil and Gas Activities—continued

Discontinued Operations and Asset Held for Sale Considerations 93-99

Goodwill and Business Combinations 100-108

Goodwill Impairment 106-108

Derivative Commodity Contracts 109-120

Fair Value Measurement 121-141

Definition of Fair Value 122-123

Application to Nonfinancial Assets 124-126

Application to Liabilities and Instruments Classified in a Reporting Entity’s Shareholders’ Equity 127-129

Valuation Techniques 130-132

Present Value Techniques 133-134

The Fair Value Hierarchy 135-137

Fair Value Disclosures 138-141

Management’s Assessment of Going Concern 142

Disclosure Requirements for Oil and Gas Entities 142-163

General 142-145

Accounting Policy Disclosures 146

Suspended Well Disclosures 147-148

FASB ASC 932 Disclosures 149-154

Other Disclosure Matters 155

Additional Disclosures for Entities Following the Full Cost Method of Accounting 156

SEC Disclosures — Subpart 1200 of Regulation S-K 157-161

Exchange Offer Disclosures 162-163

5 Full Cost Method of Accounting for Oil and Gas Activities 01-60

General 01-06

Accounting for Acquisition, Exploration, and Development Costs 07-08

Capitalization of Interest 08

Amortization of Capitalized Costs 09-18

Excluded Costs 15-18

Impairment Tests for Capitalized Costs 19-35

Cost Center Ceiling Test 19-28

Applications Involving a New Country 29-35

Accounting for Production 36

Asset Retirements, Environmental Liabilities, Abandonments, Involuntary Conversions, and Expropriations 37-41

Abandonment of Unevaluated (Unproved) Properties 37

Revisions and Settlements of AROs 38-41

Fair Value Measurements 42

Lease Arrangements 43

5 Full Cost Method of Accounting for Oil and Gas Activities—continued Conveyances 44-47

Discontinued Operations 48

Goodwill 49-54

Goodwill — Property Disposals 50-54

Other Matters 55

Management Fees and Other Income 55

Commodity Derivative Activities 56

Disclosure Requirements 57-60

Additional Disclosure Requirements for Full Cost Entities 58-60

6 Accounting for International Oil and Gas Activities 01-43

Overview 01-04

International Contractual Arrangements 05-14

Concessions 07

Production Sharing Contracts 08-09

Service Contracts 10-11

Other Arrangements 12-14

Royalty, Production Taxes, and Income Taxes 15-28

Royalty 17-18

Production Tax 19-20

Income Tax 21-28

Reporting International Proved Reserves 29-34

Asset Retirement Obligations in International Operations 35-40

The Foreign Corrupt Practices Act of 1977 41-43

7 Auditing 01-178

Overview 01-03

Planning Related Auditing Considerations 04-20

Objectives of the Auditor 04-05

The Importance of Exercising Professional Skepticism 06

Audit Planning 07-08

Audit Risk 09-13

Determining Materiality and Performance Materiality When Planning and Performing an Audit 14-17

Use of Specialists 18-20

The Use of Assertions When Identifying and Assessing the Risks of Material Misstatement 21-24

Understanding the Entity, Its Environment, and Identifying and Assessing the Risks of Material Misstatement 25-56

Risk Assessment Procedures 29-31

Industry, Regulatory, and Other External Factors 32

Nature of the Entity and Its Operations 33-49

Understanding of Internal Control 50-56

7 Auditing—continued Assessment of Risks of Material Misstatement and the Design of Further Audit Procedures 57-77

Assessing the Risks of Material Misstatement 57-60

Designing and Performing Further Audit Procedures 61-69

Auditing Accounting Estimates and Related Disclosures 70-77

Evaluating the Sufficiency and Appropriateness of the Audit Evidence Obtained 78

Written Representations from Management 79-80

Evaluating Misstatements Identified During the Audit 81-84

Additional Audit Considerations 85-88

Audit Documentation 85

Audit Evidence 86-88

Communication with Those Charged With Governance 89

Additional Considerations for Specific Audit Areas 90-158

Oil and Gas Properties — Acquisition, Exploration, and Development Activities 91-108

Depreciation, Depletion, and Amortization 109-111

Impairment 112-117

Oil and Gas Property Conveyances 118-122

Production 123-144

Payables 145-151

Asset Retirement Obligations 152

Tax and Other Regulatory Matters 153-154

Derivatives and Hedging Activities 155-157

Auditing Fair Value Measurements 158

Other Audit Considerations 159-166

Statement of Cash Flows 159-160

Commitments and Contingencies 161-163

Risks and Uncertainties 164

Related Parties 165-166

Going Concern 167

Supplementary Oil and Gas Reserve Disclosure Considerations and Related Procedures 168-178

Reserve Quantity and Value Disclosures 168-174

Supplementary Oil and Gas Reserves Procedures 175-178

8 Internal Control Considerations 01-82

Definition of Internal Control and Internal Control Framework 03-09

Internal Control Framework 03-05

Internal Control over Financial Reporting 06-09

Internal Control Considerations for Audit of a Nonpublic Entity 10-11

Reporting Requirements for a Public Entity 12-17

8 Internal Control Considerations—continued Evaluating the Effectiveness of Internal Control by Management 18-22

Components of Internal Control 18-22

Common Control Activities for Oil and Gas Entities 23-72

Acquisition of Mineral Interests 24-32

Exploration and Development Activities 33-49

Exploration, Development, and Production — Nonoperator 50

Production 51-62

Other Control Areas 63-69

Computer Based Controls 70-72

Control over Financial Statement Disclosures Specific to Oil and Gas Entities 73-82

Control over Compliance with Tax and Regulatory Requirements 80-82

Appendix

A Summary of the Successful Efforts and Full Cost Methods of Accounting

B Sample Management Representations for EntitiesWith Oil and Gas Producing Activities

C Overview of Statements on Quality Control Standards

D The New Leases Standard: FASB ASC 842

E Accounting for Financial Instruments

F The New Revenue Recognition Standard: FASB ASC 606

G Schedule of Changes Made to the Text from the Previous Edition

Glossary and Other Commonly Used Industry Terms

Index of Pronouncements and Other Technical Guidance

Subject Index