The Institute of Chartered Accountants of India (ICAI) will soon update the accounting norms for oil and gas industry to keep pace with the technological developments in the sector. “We issued guidelines for oil and gas industry in 2003. But since then a lot of technological improvement has taken place. Therefore, we are revising some norms,” ICAI Vice- President Amarjit Chopra told.
The new guidelines will especially address accounting issues pertaining to expenditure incurred in new technology required for exploration of oil and gas fields.
Right now, costs incurred on exploration that do not yield to any oil and discovery are written off.Online GST Certification Course by TaxGuru & MSME- Click here to Join
However, new technologies of oil and gas exploration are not as simple to be treated as unsuccessful so easily, and hence require different norms. ICAI is working towards those norms, Mr. Chopra said.
The new norms are also required because while incurring expenditure on exploration activities, the result is not known and a large portion of the expenditure on exploration doesn’t normally result in discovery of oil and gas.
Oil and gas producing industry is highly capital intensive and a huge amount of expenditure is incurred on exploration and development activities before the commencement of actual production.
The institute received requests regarding the problems being faced by the industry, Mr. Chopra said adding that new technologies require new methods as the existing guidelines do not facilitate it.
For making the exploration job effective and more productive, Mr. Chopra said the oil and gas companies have come out with innovative techonolgies.