Here are two articles of interest for accountants and auditors:
12/28 – The Accounting Onion – The Double Illusion of Financial Statement Comparability and Auditability: Through the Lens of Falling O&G Prices – Tom Selling illustrates the extremely subjectivity of asset impairment by discussing the oil and gas industry. A single well in Bakken field of North Dakota costs somewhere between $8 million and $10 million. Crude prices have fallen by about half in the last six months. That means future cash flows from selling anywhere from 200 to 2000 barrels of oil a day have dropped.
The extremely level of judgment needed to assess future cash flows and then to audit the impairment makes comparability across the industry very difficult.
Check out the article to see how incredible subjective the test is. And how that blows apart comparability in the industry. And that he believes the impairment analysis is unauditable.
Those impairment amounts might be reviewable, but I’m not so sure about auditable.
My comment at the article points out the range and depth of knowledge needed to make any estimates of future crude oil prices. One needs to get into economic models, guesses about how drillers will respond to changed prices, forecasts of what OPEC oil ministers will do, and how those variables with interact with each other. Several factors of these assessments depend on one’s worldview of economics and political systems.
How do you put an audit opinion around that long list of assessments?
1/3 – re:The Auditors – The Full Service Firm: McKenna Comments For Canada’s The Bottom Line on Legal Services – Big 4 firms in Canada are adding full service legal firms. Not just those services that are tangential to accounting or auditing or M&A, but full-blown legal services. Might be worth a minute of your time to look at the issue.
Here’s a depressing concept:
Ponder the implications.