Accounting Policies in the Extractive Industry: A Global and a Turkish Perspective

Karapinar, Aydın; Zaif, Figen; Torun, Salih

doi:10.1111/j.1835-2561.2011.00157.x

Cited by 7 publications

(21 citation statements)

References 7 publications

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“…Smaller and premature companies prefer FC methods, and larger and well‐established companies prefer the SE method (see Karapinar et al. ). Second, changing accounting methods for established extractive companies comes at a significant cost (Nobes and Perramon ).…”

Section: Resultsmentioning

confidence: 99%

“…They concluded that IFRS 6 simply codifies the current industry accounting practices and provides much flexibility to extractive companies in choosing the reporting method as they see fit; Karapinar et al. () concur. Cortese et al.…”

Section: Similar Studiesmentioning

confidence: 99%

“…Karapinar et al. () tried to measure compliance of IFRS 6 from the global and Turkish perspectives. They analysed selected accounting policies of five international extractive firms and five Turkish firms.…”

Section: Similar Studiesmentioning

confidence: 99%

“…Historically, substantial variation in reporting practices of extractive industries resulted in reduced comparability of both the financial accounts and results of these companies (Karapinar et al. ). To be able to make informed decisions, stakeholders outside the industry, such as banks, investors and financial and academic analysts, and regulators need to understand these practices (Glaum et al.…”

mentioning

confidence: 99%

“…The globalised nature of the extractive industries and the political, economic and strategic impact of mineral wealth on mineral-rich countries, as well as the needs of different stakeholders for transparent information, drive the need for a common accounting practice for these industries (Wise and Spear 2000). Historically, substantial variation in reporting practices of extractive industries resulted in reduced comparability of both the financial accounts and results of these companies (Karapinar et al 2012). To be able to make informed decisions, stakeholders outside the industry, such as banks, investors and financial and academic analysts, and regulators need to understand these practices (Glaum et al 2013).…”

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Accounting for Extractive Industries: Has IFRS 6 Harmonised Accounting Practices by Extractive Industries?

Abdo¹

2016

Australian Accounting Review

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Accounting for extractive industries has historically been practiced by one of a number of methods: successful efforts, full costing, area of interest, appropriation and reserve recognition accounting. The choice of method adopted leads to different accounting figures. The difference in the treatment of the costs leads to different accounting figures being reported in the financial statements of extractive companies. This means that the ‘tell it like it is’ criteria of accounting functions differently, so that stakeholders find like‐with‐like comparisons for decision‐making purposes difficult. These difficulties have culminated in the release of IFRS 6 Exploration for and Evaluation of Mineral Resources, to help harmonise accounting practice. This paper, through content analysis of annual reports of 122 upstream oil and gas companies from around the world, investigates the role of IFRS 6 in harmonising extractive industries’ accounting practices. Our analysis identifies seven types of company, which differ in their compliance with IFRS 6. Hence, we conclude that IFRS 6 has had some success in harmonising accounting treatments of exploration and evaluation expense but that this success is limited and more needs to be done to achieve wider harmonisation for the extractive industries.

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Section: Resultsmentioning

confidence: 99%

Section: Similar Studiesmentioning

confidence: 99%

Section: Similar Studiesmentioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

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Accounting for Extractive Industries: Has IFRS 6 Harmonised Accounting Practices by Extractive Industries?

Abdo¹

2016

Australian Accounting Review

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Financial statement comparability in the extractive industry

Smith

Venter

2020

ARJ

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Purpose This paper aims to investigate financial statement comparability in the extractive industry. This paper focuses on the extractive industry because International Financial Reporting Standards (IFRS) contain limited guidance on the accounting treatment for exploration and evaluation (E&E) costs and IFRS 6 – Exploration for and Evaluation of Mineral Resources allowed firms to continue with existing divergent accounting treatment of E&E costs. Design/methodology/approach The authors use data from Australia, a country that adopted IFRS in 2005 with a large extractive industry. They also compare changes in cross-country comparability around the IFRS adoption date between Australian firms and adopters relative to Australian firms and non-adopters to better isolate changes in comparability that are attributable to the adoption of IFRS from other sources that are not related to the adoption of IFRS. The authors measure comparability consistent with De Franco et al. (2011) where financial statements are comparable when two firms produce similar accounting amounts for similar economic events. Findings For non-extractive industry firms, the authors find the comparability of financial statements of Australian firms increased with other adopters and that this increase was relatively greater than the increase with non-adopter firms. This evidence is consistent with comparability benefits associated with the adoption of IFRS. However, for extractive industry firms, the authors do not find a significantly greater increase in the comparability of financial statements of Australian firms with adopters relative to the increase with non-adopters, suggesting that the increase is likely not associated with the adoption of IFRS. In additional analysis, they find that following IFRS adoption non-extractive Australian firms have greater within-country comparability relative to extractive Australian firms, while there was no difference in the pre-adoption period. Originality/value The evidence suggests that the divergent practices for E&E costs under IFRS 6 and the lack of an accounting standard that deals with matters relating to the extractive industry hinder the comparability of financial statements in this industry.

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The value relevance of exploration and evaluation expenditures

Zhou

Birt

Rankin

2015

Accounting Research Journal

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Purpose -This paper aims to investigate the value relevance of the various components of exploration and evaluation expenditures in the Australian extractives industry. Whether exploration and evaluation expenditures is more value relevant, following the adoption of AASB 6, and whether it differs for firms engaged only in exploration when compared to those also engaged in mining production is also examined. Design/methodology/approach -This paper uses a modified Ohlson model as a benchmark against which to compare an alternative valuation model featuring the disclosed components of exploration and evaluation expenditures. A sample comprising 430 firm-year observations between 2003 and 2009 is utilised. Findings -Written-off exploration and evaluation expenditures and the number of projects in which firms are involved is relevant to investors when assessing the value of extractive firms. Further, the implementation of AASB 6 has led to an improvement in the relevance of exploration and evaluation information in assessing firm value.Research limitations/implications -The sample is based on observations from the years 2003-2004 to the years 2006-2009. The authors do not incorporate 2005, as this is the first year the new standard was implemented, and there is the possibility of a settling in effect. The authors base our sample on the top 100 extractive firms in 2009. As such, these companies may not represent the accounting practices of smaller firms in the Australian extractive industry. Originality/value -The authors address a gap in the literature by examining the value relevance of the detailed line items of exploration and evaluation expenditure reported by extractives firms. The authors also explore the effect of regulatory changes by examining the value relevance of exploration and evaluation expenditures pre-and post-International Financial Reporting Standards (IFRS) 6/Australian Accounting Standards Board (AASB) 6 implementation. Finally, the authors contribute useful findings to the standard setters' ongoing deliberations aimed at producing a comprehensive standard on extractive activities by providing useful feedback on the relevance of accounting for pre-production costs under a regime using the "area of interest" method.

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Accounting Policies in the Extractive Industry: A Global and a Turkish Perspective

Cited by 7 publications

References 7 publications

Accounting for Extractive Industries: Has IFRS 6 Harmonised Accounting Practices by Extractive Industries?

Accounting for Extractive Industries: Has IFRS 6 Harmonised Accounting Practices by Extractive Industries?

Financial statement comparability in the extractive industry

The value relevance of exploration and evaluation expenditures

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