Petroleum Accounting and Financial Management Journal

Fall/Winter 1991 Vol. 10 № 3
Current Developments in Financial Accounting and Reporting 1
Dennis R. Jennings

The FASB has released an exposure draft response to criticism about the complexity of FAS 96 on accounting for income taxes and the limitation therein on the recognition of deferred tax assets. Continuing the use of the liability method set forth in FAS 96, future taxable income maybe considered when recognizing a deferred tax asset. COPAS Bulletin no. 24, Producer gas Imbalances illustrates how complex gas imbalance accounting has become and lists seventeen required and nine conditional items of data on the operator's monthly gas imbalance statement. The SEC staff has not yet taken a position on whether imbalances should be reported on the entitlement method or sales method, but informal comments have been made on disclosure and uniformity. The AICPA has released a proposed SAS, "Review of or Performing Procedures on Interim Financial Information," to supersede SAS 36 and SAS 66 effective for interim financial information filed with specified regulatory agencies for interim periods ending after September 15, 1991. The AICPA has released Financial Report Survey No. 45, "Illustrations of Management's Discussion and Analysis of Financial Condition and Results of Operations." The survey covers the initial response in practice to Financial Reporting Release No. 36 issued May 18, 1989. The most important change is in the emphasis on disclosure of forward-looking information by management.

Current Developments in Financial Accounting and Reporting. Jennings, Dennis R., Fall/Winter 1991, pp. 1‑6.

COPAS: An Update 7
J. W. Westbrook

The Audit Committee issued a new draft of the Gas Plant Audit Guideline. The EDI Committee is updating the COPAS EDI Guidebook, preparing Development of Electronic Approval: Documentation and Security Accounting Guidelines, and planning to expand E-Mail communications. The Financial Reporting Committee is circulating for comments two reports, Survey of Accounting Treatment of Environmental Costs 1990 and Guide line for Use in Determining Finding/Acquisition Costs. The Joint Interest Committee work on New Interpretation #22--24 Month Adjustment Period was approved. Revised Bulletin #4--COPAS forms has been submitted for approval. The Tax Committee has issued a supplemental update to the Severance Tax Guide.

COPAS: An Update. Westbrook, J. W., Fall/Winter 1991, pp. 7‑9.

Current Update in Oil and Gas Taxation 10
Richard S. Mark

The Tax Court has overturned the legislative regulations in Treas. Reg. 1.863-1(b) requiring that all income from oil or gas produced in the U.S. be considered U.S. income. The Tax Court ruled that secured promissory notes issued by limited partners are not included in the partner's basis until paid. The Tax Court disallowed an investment partnership's IDC prepayments noting that no working interest was owned before the IDC's were paid. The 8th Circuit Court of Appeals has held that partnership profits for services, if capable of being valued, would be subject to current taxation. The Tax Court disallowed deductions for amounts paid to a broker for finding investors.

Current Update in Oil and Gas Taxation. Mark, Richard S., Fall/Winter 1991, pp. 10‑17.

Accounting Forum 18
Horace Brock

When should a company apply a cost ceiling on capitalized costs in a new cost center under full cost accounting? When a working interest is subject to a net profit share interest, how should the owner of each interest report the revenues, expenses, and reserves of applicable and how should each report the net profit share payment made?

Accounting Forum. Brock, Horace, Fall/Winter 1991, pp. 18‑21.

A Survey of PAFMJ Readers 22
Joe L. Welch and James J. Cappel

This issue marks the completion of ten years of publication of the Journal, In April 1991 the Journal asked UNT Professor of Marketing Joe Welch and Research Associate Jim Cappel to conduct a survey of its readership with three main goals: (1) to assess the level of reader satisfaction with the Journal; (2) to determine the interests and opinions of readers about various industry issues; and (3) to gather updated information about the characteristics of the Journal's readership.

A Survey of PAFMJ Readers. Welch, Joe L. and Cappel, James J., Fall/Winter 1991, pp. 22‑41.

The Divergent Reporting Practices of U.S. O&G Companies: Survey of 1990 Financial Reports 42
Nasser A. Spear and Jeff P. Boone

The 1990 annual survey focuses on the financial reporting practices in the statement of cash flows, footnotes to the financial statements, supplemental oil and gas disclosures, and reports of management responsibilities. Forty-one companies examined used the full cost accounting method and fifty-nine companies used the successful efforts method.

The Divergent Reporting Practices of U.S. O&G Companies: Survey of 1990 Financial Reports. Spear, Nasser and Boone, Jeff P., Fall/Winter 1991, pp. 42‑82.

The Ceiling Test for Full Cost Companies: Flawed in Theory and Practice 83
Rebecca A. Gallun, Linda M. Nichols, and Joan D. Bruno

Volatile oil prices during the last decade have made impairment of long-lived assets a significant and far-reaching issue for full cost firms. The issuance by the FASB of a discussion memorandum on impairment of long-lived assets makes appropriate a re-evaluation of the practical and theoretical validity of the full cost ceiling test and the need to consider changes.

The Ceiling Test for Full Cost Companies: Flawed in Theory and Practice. Gallun, Rebecca A.; Nichols, Linda M.; and Bruno, Joan D., Fall/Winter 1991, pp. 83‑96.

Fundamentals of Gas Revenue Auditing 97
Matt H. Evans and Orville Miller

Mr. Evans and Mr. Miller have found gas revenue Auditing often inadequate due to both its complexity and the absence of trained employees. The purpose of the article is to present a fundamental introduction to the topic.

Fundamentals of Gas Revenue Auditing. Evans, Matt H. and Miller, Orville, Fall/Winter 1991, pp. 97‑112.

Alternative Certifications: The CMA and CIA Certifications Offer Attractive Options to the CPA Certification 113
Benny Copeland

A growing trend among firms has been a formal "promotion from within" policy. Firms with such a policy are able to effect the choice of the professional accounting examination taken and to indicate acceptance of, or even preference for, the CMA or CIA designation for specific career paths within the company.

Alternative Certifications: The CMA and CIA Certifications Offer Attractive Options to the CPA Certification. Copeland, Benny, Fall/Winter 1991, pp. 113‑123.

Are You Sure You Don't Have Any E&P? 124
Jack Robison and Richard S. Mark

Corporate distributions are generally not taxable as dividends if there is no positive E&P at the time of distribution. An error in calculated E&P may lead to an unpleasant and expensive surprise. This article presents a simplified case study to illustrate that the absence of retained earnings does not mean the absence of E&P.

Are You Sure You Don't Have Any E&P? Robison, Jack and Mark, Richard S., Fall/Winter 1991, pp. 124‑130.

Loss of the Louisiana Wetlands 131
W. L. Berry

Many oil and gas industry critics believe that a significant portion of Louisiana wetland loss is a direct or indirect result of petroleum operations. Mr. Berry argues that what we are witnessing is the long-term, natural, and ongoing geological process of building and destroying land in the lower Mississippi River Delta, accelerated by the construction of levees on the Mississippi.

Loss of the Louisiana Wetlands. Berry, W. L., Fall/Winter 1991, pp. 131‑138.

The Independent Producer and the AMT Energy Preference Deduction: Complex Calculations to Achieve Simple Goals 139
Richard Mark, Charles Boynton, and Jack Robison

In the Revenue Reconciliation Act of 1990, Congress granted AMT relief for "exploratory" IDC's and "marginal production" preference depletion. The application of the new provisions is by no means elementary. Professors Mark, Boynton, and Robison offer proposed solutions to aid in planning and year-end calculations.

The Independent Producer and the AMT Energy Preference Deduction: Complex Calculations to Achieve Simple Goals. Mark, Richard; Boynton, Charles; and Robison, Jack, Fall/Winter 1991, pp. 139‑156.

The Timing of Asset Write Downs in the Oil and Gas Industry: 1985-86 157
Kevin C. W. Chen

Many oil and gas firms using the full cost accounting method faced write downs due to the collapse of oil prices in early 1986. Some took early write downs to 1985 earnings; some took write downs in the first quarter of 1986; and others changed accounting method. Often 1986 prices were used for the 1985 write downs. Professor Chen analyzes the inconsistencies in the differently timed write downs.

The Timing of Asset Write Downs in the Oil and Gas Industry: 1985-86. Kevin, C. W. Chen, Fall/Winter 1991, pp. 157‑169.