Oil and gas is the lifeline of the economy of a country. The economic health of a country, among other factors, is also measured by the amount of oil and gas that is consumed in the country India, though having ample supply of natural mineral wealth, has traditionally been an importer of oil and gas. Every year a large portion of our imports consists of petroleum products. As a consequence, this sector accounts for a huge chunk of foreign currency outgo. The Government has opened this sector for private players too to meet the shortfall in domestic supply and reduce expenditure on oil to some extent. Recently, this sector has witnessed phenomenal growth with the entry of private enterprises in this traditional bastion of public sector companies.
The Research Committee of the Institute of Chartered Accountants of India (ICAI) had earlier formulated a ‘Guidance Note on Accounting for Oil and Gas Producing Activities’ to establish sound accounting principles related to exploration, development and production of oil and gas. However, in order to keep pace with the advancements in the field of technology and techniques of oil exploration, a need was felt for its revision. Internationally, developments have taken place in prescribing guidance for accounting of extractive activities. Presently, in India this Guidance Note is an important pronouncement for prescribing sound accounting principles for accounting of upstream activities, thus revision of this literature was undertaken to take into account the latest developments.