Authors: Dr Hafez Abdol, Professor Musa Mangena
decommissioning costs of oil and gas assets meet the description of asset and provisions under IAS 37. Therefore, accounting for, and disclosures of, provisions for decommissioning oil and gas installations are accounted for in accordance with IAS 16 and IAS 37. Hence, these costs are recognized at the point of an asset installation as part of that asset’s historical cost and as a provision in the balance sheet. However, given the long time span between the asset installation point and decommissioning that asset accounting for decommissioning costs is subject to significant complexity and subjective judgments. Due to their sizes decommissioning costs of oil and gas installations have material cash flow effects. Given the magnitude of decommissioning costs, disclosures of provisions are critical for stakeholders to understand the impact on future cash flows. This study investigates compliance with the reporting requirements of international accounting standards (IASs) regarding provisions for decommissioning costs; it extends to uncover perceptions of stakeholders on reporting practices. Using both secondary and primary data and utilizing a content analysis approach, we conclude that while there are sufficient accounting standards to regulate provisions of decommissioning costs of oil and gas installations there is a lack of compliance with disclosure requirements of IASs. Oil and gas companies tend to disclose the minimum amount of information about provisions for decommissioning costs. We find that stakeholders perceive the information provided by the companies as inadequate and require them to provide more detailed and meaningful information. Our findings have imperative policy implications for improving the quality of information availed to stakeholders.
Keywords: Disclosure compliance, International accounting standards, Decommissioning costs, provisions, Oil and Gas