The status of OIAC’s Statements of Recommended Accounting Practice (SORP)
The SORP ‘Accounting for Oil and Gas Exploration, Development, Production and Decommissioning Activities’ was last updated in 2001. As much of the SORP has been superseded by subsequent changes to accounting standards, including the requirements of FRS’s 100-102; OIAC has concluded that the main function of the SORP – setting out best practice in relation to industry activities that were not covered directly by the main body of UK accounting standards – is no longer applicable. It should for example be noted that, under sections 34.11 of FRS 102, or FRS 101, an entity engaged in extractive activities is required to apply IFRS 6 Exploration for and Evaluation of Mineral Resources.
During the development of FRS 100-102, OIAC advised the Accounting Standards Board (“ASB”) on its views of the current status of the SORP and its reluctance to update it. The ASB incorporated OIAC’s views into the final statements and therefore OIAC have effectively stood down as a SORP- setting body.
The SORP’s secondary role – a “how to do it” manual for people new to the industry, returning to it after an absence, or simply brushing up on a particular treatment – may still have some relevance. In particular, OIAC would highlight paragraphs 12, 246 – 251 and Appendix 4 of the SORP covering the disclosures and definitions of commercial reserve quantities, which remains common industry “good practice”, in the absence of any guidance under UK accounting standards (or IFRS) in this area.
Applicability of the SORP under current UK Accounting Standards
The SORP remains applicable for non-listed entities reporting under UK accounting standards until such time as those entities adopt FRS 100-102.
The SORP will no longer apply to any entity for accounting periods beginning on or after 1 January 2015 (the deadline for the application of FRS 100-102). However, the SORP is being retained below on the OIAC website as a reference document.
OIAC’s Status and Future Guidance
OIAC intends to issue occasional guidance – referencing UK accounting standards and IFRS, as applicable, to assist the preparers of financial statements with industry specific accounting issues. This is in addition to OIAC’s other areas of activity, notably reviewing and commenting on proposed new standards that may affect the UK upstream oil and gas industry.
These guidance notes will be primarily educational, will not carry the weight of the SORP, and will not be reviewed or endorsed by the FRC. They will also be subordinate to the likely more detailed guidance available to all companies from their auditors and financial advisers.
Oil Industry Accounting Committee October 2013
Statement of Recommended Practice – ‘Accounting for Oil and Gas Exploration, Development, Production and Decommissioning Activities’