CONTEMPORARY ISSUE

Accounting Practice by Joint Ventures in the Oil and Gas Industry

Accounting Practice by Joint Ventures in the Oil and Gas Industry

Introduction

Joint ventures are common arrangements in the oil and gas industry, and come in a variety of forms. Companies historically have used joint ventures as a means of sharing the risks and costs of exploration and production activities, and as a practical way of entering new countries and areas of operation. The term “joint venture” is widely used as an all-encompassing operational expression to describe shared working arrangements between oil and gas companies. However, this does not mean that such arrangements are joint ventures for accounting purposes. A lack of disclosure sometimes made it difficult to understand the nature of the company's interests in joint ventures from an accounting point of view.

The quick development of world financial market demands coordination of accounting standard and approach around the globe. Many countries who have not implemented are planning to adopt or converge with IFRSs in the upcoming days. It is more complex to adopt than it looks. There may be some accounting issues that may have a major impact on the company. It has the higher impact on the financial results. Some countries are still unaware of the IFRS practices. They are using traditional systems for financial statements. This paper presents the IFRS and GAAP regulations for oil and gas industry' especially the joint ventures.

IFRS and GAAP

The IASB (International Accounting Standards Board) is the independent standard-setting body of the IFRS Foundation. There are 15 full time members of IFRS who have been given the responsibility of publication and development of IFRS. These members also have the responsibility of publication of IFRS for small and medium enterprise. They should also approve the interpretations which are developed by the interpretation committee of IFRS. A rigorous, open and transparent process if followed by IASB for executing its responsibility of standard setting. The stakeholders are closely engaged with IASB all over the world. The stakeholders include all the investors, Regulators, analysts, business leaders and all those associated to the accountancy profession

The International Accounting Standards Board adopted principles-based standards and interpretations and these standards, called The International Financial Reporting Standards. International Accounting Standards (IAS) issued most the standards adopted by IASB. The Board of the International Accounting Standards Committee (IASC) issued IAS during 1973 and 2000. The latest IASB took over IASC on1 April 2001, also took responsibility for setting International Accounting Standards. The basic objectives of these standards were that the company financial statement should provide a true and fair view of the business affairs to the stake holders. Hence it is important that the financial statement must reflect factual and fair financial position.

In 2000, the SEC mentioned that, for the development of the high quality global financial reporting structure, high quality accounting standards are important. Due to varied need of users for whom the financial information is prepared, many different accounting traditions have been developed all over the world. In some countries of the world, the accounting standards have been shaped even according to the needs of private creditors, as ...