Article critique on the proposed elimination of full cost accounting in the petroleum industry
The opposition of full cost accounting as affirmed by Collins (1979) is concrete due to the threat it will pose on the economy. Also, it hinders the resulting in the reduction of exploitation activities in firms thus less competition in gas and oil production industries. The companies that are bound to be affected are the ones rising as they will withdraw from high-risk investments thus joining larger companies that can survive under these fluctuations. These effects will lead to an impact on investment and production decisions.
Designs to help small firms should be considered while creating an equal platform for companies experiencing full cost accounting. By the firms in Canada and the U.S combining there is an adjustment in weekly returns on risk bringing forth less effect on the post-exposure draft test period. It would be appropriate as articulated by Collins (1979) for small firms to note of treatment and control measures. The discovery of oil in Canada will bring potential benefits that will lead to potential allowances on firms engaged in frontier exploration.
Further, the suggestion to eliminate full cost as asserted by Collins (1979) accounting is fully associated with the negative difference it brings associated with the risk assessment returns between both full and successful effort cost firms. According to FASB and DOE is that the full cost accounting has provided incentives for management to take place in costly and risky exploration activities without fear of being unduly penalized on financial reports. Additional costs on companies and firms are likely to be experienced. Lastly, it is important to note that the firm changes take place given that there is a change in accounting techniques.
References
Collins, D. W., & Dent, W. T. (1979). The proposed elimination of full cost accounting in the extractive petroleum industry: An empirical assessment of the market consequences. Journal of Accounting and Economics, 1(1), 3-44.