IDEAS home Printed from https://ideas.repec.org/a/eee/bracre/v49y2017i6p545-559.html
   My bibliography  Save this article

Accounting in the London Stock Exchange's extractive industry: The effect of policy diversity on the value relevance of exploration-related disclosures

Author

Listed:
  • Power, Sean Bradley
  • Cleary, Peter
  • Donnelly, Ray

Abstract

The accounting treatment of exploration expenditure in the extractive industry has historically been a challenging issue for regulators. This paper examines the accounting policies for, and value relevance of, the exploration assets of firms listed on the London Stock Exchange from the oil & gas and mining sectors. The policies used by oil & gas firms range from the relatively conservative Successful Efforts to the most aggressive Full Cost method, whereas mining firms employ a range of policies from the Successful Efforts to the most conservative Expense All method. The results suggest that the income statements of Main Market-listed extractive firms contain value relevant information regardless of the policy followed by the firm. There is no significant difference between the value relevance of exploration asset disclosures by Main Market-listed oil & gas firms following the Successful Efforts or Full Cost methods. For AIM-listed oil & gas companies only the Full Cost method provides value relevant information on exploration assets. In the mining sector, exploration-related asset disclosures are only value relevant for AIM-listed firms following the Expense All method. The results suggest that flexibility in accounting for exploration expenditure is necessary to facilitate the disclosure of value relevant accounting information.

Suggested Citation

  • Power, Sean Bradley & Cleary, Peter & Donnelly, Ray, 2017. "Accounting in the London Stock Exchange's extractive industry: The effect of policy diversity on the value relevance of exploration-related disclosures," The British Accounting Review, Elsevier, vol. 49(6), pages 545-559.
    • Handle: RePEc:eee:bracre:v:49:y:2017:i:6:p:545-559
    DOI: 10.1016/j.bar.2017.08.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0890838917300422
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.bar.2017.08.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Nasser A. Spear, 1994. "The Stock Market Reaction to the Reserve Quantity Disclosures of U.S. Oil and Gas Producers," Contemporary Accounting Research, John Wiley & Sons, vol. 11(1), pages 381-404, June.
    2. Cortese, Corinne & Irvine, Helen, 2010. "Investigating international accounting standard setting: The black box of IFRS 6," Research in Accounting Regulation, Elsevier, vol. 22(2), pages 87-95.
    3. Cortese, Corinne L. & Irvine, Helen J. & Kaidonis, Mary A., 2010. "Powerful players: How constituents captured the setting of IFRS 6, an accounting standard for the extractive industries," Accounting forum, Elsevier, vol. 34(2), pages 76-88.
    4. Corinne L. Cortese & Helen J. Irvine & Mary A. Kaidonis, 2010. "Powerful players: How constituents captured the setting of IFRS 6, an accounting standard for the extractive industries," Accounting Forum, Taylor & Francis Journals, vol. 34(2), pages 76-88, June.
    5. Ron Bird & Matthew Grosse & Danny Yeung, 2013. "The market response to exploration, resource and reserve announcements by mining companies: Australian data," Australian Journal of Management, Australian School of Business, vol. 38(2), pages 311-331, August.
    6. Bushman, Robert & Chen, Qi & Engel, Ellen & Smith, Abbie, 2004. "Financial accounting information, organizational complexity and corporate governance systems," Journal of Accounting and Economics, Elsevier, vol. 37(2), pages 167-201, June.
    7. Holthausen, Robert W. & Watts, Ross L., 2001. "The relevance of the value-relevance literature for financial accounting standard setting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 3-75, September.
    8. Barth, ME & Clinch, G, 1998. "Revalued financial, tangible, and intangible assets: Associations with share prices and non-market-based value estimates," Journal of Accounting Research, Wiley Blackwell, vol. 36, pages 199-233.
    9. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    10. Bell, Tb, 1983. "Market Reaction To Reserve Recognition Accounting," Journal of Accounting Research, Wiley Blackwell, vol. 21(1), pages 1-17.
    11. MacKinnon, James G. & White, Halbert, 1985. "Some heteroskedasticity-consistent covariance matrix estimators with improved finite sample properties," Journal of Econometrics, Elsevier, vol. 29(3), pages 305-325, September.
    12. Magliolo, J, 1986. "Capital-Market Analysis Of Reserve Recognition Accounting," Journal of Accounting Research, Wiley Blackwell, vol. 24, pages 69-108.
    13. Barth, Mary E. & Konchitchki, Yaniv & Landsman, Wayne R., 2013. "Cost of capital and earnings transparency," Journal of Accounting and Economics, Elsevier, vol. 55(2), pages 206-224.
    14. Cortese, Corinne L. & Irvine, Helen J. & Kaidonis, Mary A., 2009. "Extractive industries accounting and economic consequences: Past, present and future," Accounting forum, Elsevier, vol. 33(1), pages 27-37.
    15. Luther, Robert, 1996. "The development of accounting regulation in the extractive industries: An international review," The International Journal of Accounting, Elsevier, vol. 31(1), pages 67-93.
    16. Corinne L. Cortese & Helen J. Irvine & Mary A. Kaidonis, 2009. "Extractive industries accounting and economic consequences: Past, present and future," Accounting Forum, Taylor & Francis Journals, vol. 33(1), pages 27-37, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tega Anighoro, 2020. "Value relevance of the components of oil and gas reserve quantity change disclosures of upstream oil and gas companies in the london stock exchange," Papers 2005.14659, arXiv.org.
    2. Corinne Cortese & Lee Moerman & Millicent Chang, 2022. "Is the extractive industries standard still fit for purpose?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2807-2838, June.
    3. Sidney J. Gray & Niclas Hellman & Mariya N. Ivanova, 2019. "Extractive Industries Reporting: A Review of Accounting Challenges and the Research Literature," Abacus, Accounting Foundation, University of Sydney, vol. 55(1), pages 42-91, March.
    4. Christopher Nobes & Christian Stadler, 2021. "Towards a Solution to the Variety in Accounting Practices of Extractive Firms under IFRS," Australian Accounting Review, CPA Australia, vol. 31(4), pages 273-285, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sidney J. Gray & Niclas Hellman & Mariya N. Ivanova, 2019. "Extractive Industries Reporting: A Review of Accounting Challenges and the Research Literature," Abacus, Accounting Foundation, University of Sydney, vol. 55(1), pages 42-91, March.
    2. Tega Anighoro, 2020. "Value relevance of the components of oil and gas reserve quantity change disclosures of upstream oil and gas companies in the london stock exchange," Papers 2005.14659, arXiv.org.
    3. Misund, Bård, 2015. "Accounting for Oil and Gas Exploration Activities: A Triumph of Economics over Politics," UiS Working Papers in Economics and Finance 2015/15, University of Stavanger.
    4. Bård Misund, 2017. "Accounting method choice and market valuation in the extractive industries," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1408944-140, January.
    5. Bebbington, Jan & Schneider, Thomas & Stevenson, Lorna & Fox, Alison, 2020. "Fossil fuel reserves and resources reporting and unburnable carbon: Investigating conflicting accounts," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 66(C).
    6. Misund, Bård, 2015. "Reserves Replacement and Oil and Gas Company Shareholder returns," UiS Working Papers in Economics and Finance 2015/11, University of Stavanger.
    7. Hanlon, Dean & Navissi, Farshid & Soepriyanto, Gatot, 2014. "The value relevance of deferred tax attributed to asset revaluations," Journal of Contemporary Accounting and Economics, Elsevier, vol. 10(2), pages 87-99.
    8. Rute Gonçalves & Patrícia Lopes, 2015. "Value-Relevance of Biological Assets under IFRS," FEP Working Papers 556, Universidade do Porto, Faculdade de Economia do Porto.
    9. Ioannis Tsalavoutas & Paul André & Lisa Evans, 2009. "Transition to IFRS and value relevance in a small but developed market: A look at Greek evidence," Post-Print halshs-00460532, HAL.
    10. Teng Zhou & Jacqueline Birt & Michaela Rankin, 2015. "The value relevance of exploration and evaluation expenditures," Accounting Research Journal, Emerald Group Publishing Limited, vol. 28(3), pages 228-250, November.
    11. Atoche, Teresa duarte & Pérez lópez, José ángel & Camúñez ruiz, Jose antonio, 2012. "La relevancia de los gastos de I+D. Estudio empírico en el sector del automóvil," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 15(2), pages 257-286.
    12. Dahmash, Firas N. & Durand, Robert B. & Watson, John, 2009. "The value relevance and reliability of reported goodwill and identifiable intangible assets," The British Accounting Review, Elsevier, vol. 41(2), pages 120-137.
    13. Christopher Nobes & Christian Stadler, 2021. "Towards a Solution to the Variety in Accounting Practices of Extractive Firms under IFRS," Australian Accounting Review, CPA Australia, vol. 31(4), pages 273-285, December.
    14. Gjerde, Øystein & Knivsflå, Kjell & Sættem, Frode, 2008. "The value-relevance of adopting IFRS: Evidence from 145 NGAAP restatements," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 17(2), pages 92-112.
    15. Gonçalves, Rute & Lopes, Patrícia & Craig, Russell, 2017. "Value relevance of biological assets under IFRS," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 29(C), pages 118-126.
    16. José Curto & José Pinto & Ana Morais & Isabel Lourenço, 2011. "The heteroskedasticity-consistent covariance estimator in accounting," Review of Quantitative Finance and Accounting, Springer, vol. 37(4), pages 427-449, November.
    17. Musa Yelwa Abubakar & Nasiru Abdulsallam & Muhammad Yusuf Alkali, 2017. "The Impact of the New Accounting Reporting Among Listed Firms in Nigerian Stock Market," Asian Journal of Social Sciences and Management Studies, Asian Online Journal Publishing Group, vol. 4(1), pages 1-9.
    18. MacKinnon, J G, 1989. "Heteroskedasticity-Robust Tests for Structural Change," Empirical Economics, Springer, vol. 14(2), pages 77-92.
    19. Gu, Chen & Kurov, Alexander & Wolfe, Marketa Halova, 2018. "Relief Rallies after FOMC Announcements as a Resolution of Uncertainty," Journal of Empirical Finance, Elsevier, vol. 49(C), pages 1-18.
    20. Goncalves, Silvia & Kilian, Lutz, 2004. "Bootstrapping autoregressions with conditional heteroskedasticity of unknown form," Journal of Econometrics, Elsevier, vol. 123(1), pages 89-120, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:bracre:v:49:y:2017:i:6:p:545-559. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/the-british-accounting-review .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.