Relative Value Relevance of the Successful Efforts and Full Cost Accounting Methods in the Oil and Gas Industry

Relative Value Relevance of the Successful Efforts and Full Cost Accounting Methods in the Oil... This paper examines the value relevance of two alternative accounting methods for exploration and development (E&D) expenditures for oil and gas firms. I find that full cost (FC) accounting data is more value-relevant than successful efforts (SE) accounting data. Further analysis reveals that the smooth earnings provided by the FC method contributes to the higher value relevance of the FC method. This study concludes that a policy of full capitalization of expenditures with uncertain future economic benefits better summarizes information relevant to investors relative to a policy of partial capitalization. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Relative Value Relevance of the Successful Efforts and Full Cost Accounting Methods in the Oil and Gas Industry

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2003 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1023/A:1022645521775
Publisher site
See Article on Publisher Site

Abstract

This paper examines the value relevance of two alternative accounting methods for exploration and development (E&D) expenditures for oil and gas firms. I find that full cost (FC) accounting data is more value-relevant than successful efforts (SE) accounting data. Further analysis reveals that the smooth earnings provided by the FC method contributes to the higher value relevance of the FC method. This study concludes that a policy of full capitalization of expenditures with uncertain future economic benefits better summarizes information relevant to investors relative to a policy of partial capitalization.

Journal

Review of Accounting StudiesSpringer Journals

Published: Oct 2, 2004

References

  • Relative Valuation Roles of Equity Book Value and Net Income as a Function of Financial Health
    Barth, M.; Beaver, W. H.; Landsman, W. R.
  • The Relevance of the Value Relevance Literature for Financial Accounting Standard Setting: Another View
    Barth, M.; Beaver, W. H.; Landsman, W. R.
  • The Effects of Cross-sectional Scale Differences on Regression Results in Empirical Accounting Research
    Barth, M.; Kallapur, S.
  • The Conservatism Principle and the Asymmetric Timeliness of Earnings
    Basu, S.
  • Relative Versus Incremental Information Content
    Biddle, G. C.; Seow, G. S.; Siegel, A. F.

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