Accounting Problems of Petroleum and Mining Industries

The petroleum and mining industries have more than their share of accounting problems, but not without reason. One of the reasons for this is the high risk involved in these extractive industries; another is the practice of conforming accounting methods to reflect the special provisions found throughout the federal tax law. Accounting practices, once developed, were sanctioned by independent auditors on the grounds that they were generally accepted, even though they represented unsound practices. Over a period of time, several methods for accounting for the same transaction have come to be acceptable. The net result is that the accounting and reporting practices of oil and gas companies and mining companies vary considerably from company to company within the industry, making it almost impossible for the average reader of financial statements to determine the true economic facts behind the financial results reported by the companies. There is a substantial absence of uniformity, which makes it difficult to compare even one major oil company with another.

In an editorial appearing in a recent copy of The Oil and Gas Journal,1 the point I want to emphasize today was well stated in a discussion of the recent high earnings [206] report by some of the major oil companies. This is wonderful news, if you don't look behind the headlines. I should like to now take you behind t