1.1 BACKGROUND OF THE STUDY
The oil and gas industry is one of such industries that has specific accounting standards. This is as a result of its peculiarity in terms of high capital requirement, earnings violability, regulation, type of business ownership, taxation, non-correlation between the account of investment made and returns obtained (Wright and Gullen et al, 2008) and high sensitivity to risk like price risk and foreign exchange risk etc. Therefore, when the international Financial Reporting Standards (IFRS) was adopted by exploration companies in Nigeria, it became imperative for oil and gas companies in the sector to prepare financial statements in line with the statement of accounting standards. Upstream oil and gas organizations must meticulously record, track, distribute and report sales of oil and gas and other products. Accurate and timely oil and gas revenues accounting require tracking complex contracts and owner lease agreements. It must also reflect joint venture and capital expenditure accounts among others. The nature of the complexity of the oil and gas operations makes the nature of its accounting reporting even more complex by new challenges such as horizontal drilling etc. The research, therefore, intends to explore the nature of oil and gas accounting in Nigeria, challenges and solutions.
1.2 STATEMENT OF THE PROBLEM
The complex nature of the operations of the upstream oil and gas industry makes the oil and gas accounting more complex in nature. However, the International Financial Reporting Standards (IFRS) requires that oil and gas companies in the upstream sector prepare their financial statement in-line with the statement of accounting standards 14 (accounting in the petroleum industry; upstream activities) and SAS 17 (accounting in petroleum) formulated by the Nigerian Accounting Standard Board. This is as a result of the guidelines stipulated by the International Accounting Standard Board (IASB) However, oil and gas accounting is made increasingly difficult by new challenges and risks such as horizontal drilling, price risk, foreign exchange risk etc. Research work into the various accounting standards needed in this particular industry have not been detailed and thorough.This research seeks to investigate the practice of oil and gas accounting in Nigeria, understand its operation and determine what extent it has been standardized to help move the industry forward to international standards.