Accounting Regulation of Extractive Industries Essay

Accounting Regulation of Extractive Industries - Essay Example ay a critical role in global economic and political relations and include companies in oil, gas and mining industries such as Exxon Mobil, Anglo American and Royal Dutch/Shell Group. The economic power of extractive industries is evidenced by the US $ 211 trillion in profits that was recorded by 20 extractive industries in 2005 compared with United States GDP of US $ 11 trillion in 2005. Efforts to regulate the extractive industry were initiated by the International Accounting Standards Committee (IASC), now the International Accounting Standards Board (IASB) in 1998 in order to address the problem associated with differing accounting practices used by the companies in the sector (Cortese, Irvine and Kaidonis, 2010). The previous accounting standards such as IAS 16 on property, plant, and equipment and IAS 38 on intangible assets did not address the thorny issue of accounting for extractive operations in oil, gas and mining operations. In this case, IFRS 6, exploration for and evaluation of Mineral Resources was released in 2004, but experts in the field claims that the standard codified the existing industry practice and provided the companies with flexibility to continue reporting in their preferred mode (Nobes & Parker 2008). The impact of the reported profits can be substantial and thus IASC sought to address the discrepancies at the international level. Proponents of full cost method stressed the need to retain the two methods and an Ad Hoc Committee on full costing consisting of various industry bodies and players was constituted (Nobes & Parker 2008). Companies in extractive industries have global operations and diversity in their accounting and reporting has evolved in leading mining regions such as South Africa, Canada, the United Kingdom, Australia and the United States (US). Wiecek & Young (2010) explains that the economic importance of extractive industries led IASC to recognise the need for an international accounting standard that would provide