Oil and Gas Accounting Practical Challenges and Solutions in Nigeria: a Case Study of Exxon Mobil Nigeria Plc
CHAPTER ONE
Objectives of the Study
The broad objective of the study is to investigate the challenges and solutions to oil and gas accounting in Nigeria using Exxon Mobil as a case study. The specific objectives of the study are to:
- Assess the independence of tracking of all costs impacting on the
- Assess the efficiency and appropriateness of environmental costs reporting and disclosure.
- Ultimately, evolve and provide conceptual bases and design for cost and management accounting and disclosure in financial reporting of environmental information.
CHAPTER TWO
LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK
THEORY, CONCEPTS AND MODELS
SOCIAL ACCOUNTING
The literature reveals a number of works which explain Voluntary Social Environmental Reporting (SER). Several concepts and models have emanated from the social, economic and management perspectives which address environmental responsibility and accountability; Concepts such as the Social Contract Concept, Quality of Life Concept, the Stakeholder Theory, the Political Economy Theory and the Risk Society Framework. Owolabi (2007:60) observed that there is high degree of awareness of environmental issues in the oil and gas sector in Nigeria. In his work, he identified the Social Contract Concept and the Quality of Life (QOL) Concept of SER.
Social accounting has been synonymously used as Social and Environmental Accounting, Corporate Social Reporting, Corporate Social Responsibility Reporting, Non- Financial Reporting and Sustainability Accounting. Gray, Owen and Maunders (1987:ix) has defined Social accounting as ‘the process of communicating the social and environmental effects of organizations’ economic actions to particular interest groups within society and to society at large.’ Crowther (2000:20) also defines social accounting sense as ‘an approach to reporting a firm’s activities which stresses the need for the identification of socially relevant behaviour, the determination of those to whom the company is accountable for its social performance and the development of appropriate measures and reporting techniques.’
Wiki (2009) recognizes social responsibility as an ‘ethical or ideological theory that an entity whether it is a government, corporation, organization or individual has a responsibility to society.’ It stated that Corporate Social Responsibility (CSR) also ‘imply that corporations have an implicit obligation to give back to society (such as is claimed as part of corporate social responsibility and/or stakeholder theory)’ The World Business Council for Sustainable Development (cited in Obalola, 2008:542) in 1998 conceived CSR ‘as the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the work force and their families as well as of the local community and society at large.’ UNIDO Position paper on Corporate Social Responsibility asserts that:
… this means that, through CSR, companies can detect and overcome inefficiencies in their production process, continuously upgrade the quality of their products, and gradually develop their expertise in marketing and sales in an ever-wider market place. By doing so, they eventually improve their environmental and social performance and, thereby, their overall competitiveness. (UNIDO Position paper on Corporate Social Responsibility)
The Social Contract Concept
The Social Contract concept of CSR has been well acknowledged in many past works. Heard and Boles (1981:247-254), Gray et al (1988), and Owolabi (2007:58) agree that Social Contract Concept is responsible for Corporate Social Reporting (CSR). Donaldson (1982) opines that social contract is central to social change and reforms. Deegan (1998) associates the Social Contract expectation with the Legitimacy Theory where “there is a social contract between the organization and those affected by the organization’s operations”.
Legitimacy Theory as pertaining to social and environmental disclosure
Campbell, Craven, and Shrives, (2003:555-581) examined perceived legitimacy gap alongside of Voluntary Disclosure requirement for social and environmental issues and costs. This work examined the extent to which Voluntary Disclosure represent an attempt to close perceived legitimacy gap. This has also been evaluated by Lindblom (1994), Gray, et al (1995:47-77), Suchman (1995) and O’Donovan. (2002:344-371). Aderinto (1980) in Owolabi (2007:67) had observed two conflicting opinions of the legalistic and the social responsibility views and would appear to pitch tent with the latter view. Aderinto (1980) expressed that organizations’ purpose was to have investments for profits and not expected to have a social conscience for social welfare and obligations. Sada (1988:27-37) differs from that view; he expressed that it was rather increasingly acceptable to have corporate organizations clearly exhibit a sense of public obligation to the social cost of their economic activities. Legitimacy Theory presupposes a relationship of understanding between different parties and reciprocal responsibilities. ‘Organizations operate within certain bounds imposed by society in order to enjoy continued access to products and resource markets’ (Campbell et al: 2003:559). The works of Campbell et al (2003) referred to above, captured voluntary social disclosure over a longitudinal period in excess of 20 years (1975-1997) in three companies (tobacco, brewing and retailing) in the UK. It was concluded in the work that:
It is argued that companies in these industries have differing motivations towards legitimation owing to the different perceptions that society has with regard to their activities (and their social and ethical behaviour) and how the management of the companies themselves perceive social opinions about them.
CHAPTER THREE
RESEARCH METHODOLOGY
ResearchDesign
The data for this study were from both primary and secondary sources. For this purpose, both cross-sectional content analyses (within and across sector companies) and longitudinal (ten-year annual report and financial statements) content analyses of 132 companies in their sub-sectors as in Nigeria Stock Exchange Commission (NSE) are employed. The researcher has largely sourced for Company Annual Reports partly directly from Corporate Registrars of companies, request from the companies, visit to the Nigeria Stock Exchange (NSE) and the Manufacturing Association of Nigeria (MAN). Also, primary instrument through questionnaire administration to sample companies was utilized. Primary data were collected through structured questionnaire. The questionnaire was structured into four broad sections A to D; Section A was to address the nature of environmental operating expenditure, Section B, on environmental cost accounting system, Section C on issues of technology for product content and policies on environment and Section D on environmental failure costs and for pollution detection and prevention. It is considered that both research methods will be complementary and make for fuller evaluation of true state of environmental cost accounting and disclosure practice among sample companies.
Area of Study
More attention was focused on the Oil & Gas and the Manufacturing sectors of the Nigerian economy. It however spanned across ten (10) sub-sectors of the economy, such as the Oil & Gas sector (Upstream, Downstream and Indigenous Oil & Gas sub-sector), chemical & paint, breweries, building material, automobile & tyre, and agricultural sector. This study also focuses on manufacturing health care sub-sector, conglomerates and food & beverages sub- sectors of the economy.
In his work, Owolabi (2007) focused on environmental accounting in the Oil & Gas sector of Nigeria. This study therefore, further verifies both the Oil & Gas and manufacturing as it is considered that both the Oil & Gas and manufacturing generally impact adversely much on the environment through effluents and emission to the environment. To that effect, the study has considered secondary data through corporate annual reports of companies particularly those listed in the Nigerian Stock Exchange Market.
CHAPTER FOUR
DATA ANALYSIS AND PRESENTATION
SOURCES OF DATA COLLECTION Sources of Secondary Data
Critical source of secondary data were disclosures and reporting in corporate annual reports. Annual Reports and Financial Statements were largely utilized in the works of Campbell, Craven and Shrives (2003); also in Lindblom, (1994); Gray, R; Kouhy, R and Lavers, S. (1995); Trotman and Bradley, (1981); Guthrie and Parker, (1990); Patten, (1991); Hacksten and Milne, (1996); and Adams, C.A, Hill, W.Y and Roberts, C.B. (1998). Owolabi (2007) also utilized company annual reports in his work. It is asserted that the Annual Reports are documents of companies which are produced regularly which comply with statutory standards. They also serve as the most important documents for the organization’s construction of its own social image, and audited Annual Reports and Financial Statements have reliability and credibility.
CHAPTER FIVE
DISCUSSIONS OF FINDINGS, POLICY RECOMMENDATIONS AND CONCLUSION
OVERVIEW OF THE STUDY OBJECTIVES
A recap of the objectives of the study is to:
- Assess level of existence or non-existence, appropriateness and efficiency of environmental costs and disclosure reporting, whether of current or capital
- Assess level of independence of tracking of all costs impacting on the environment whether current or capital
- Evolve and provide conceptual bases for cost and management accounting and disclosure in financial reporting of both environmental financial and non-financial
- Design bases for environmental cost accounting for corporate organizations and disclosure in corporate financial statement which will facilitate efficient valuation of degradation in affected communities. It is also intended that this study will evaluate the challenges and prospects facing organizations with regard to designing environmental accounting concepts, reporting and disclosure.
The double Research Instruments approach through Primary Questionnaires and Secondary data corporate Annual Reports & Financial Statements is well intentioned. Results which are gathered through both research instruments are meant to be corroborative. As remarked in the study, Annual Reports and Financial Statements are valid and accepted official reporting of statutory organizations. Annual Reports and Financial Statements of corporate organizations reveal the reality state of reporting of activities to the public. Consequently, environmental cost responsiveness, accounting reporting and disclosure of environmental activities will be evidently revealed or otherwise.
It is understandable that there are other sources of information apart from through Annual Reports and Financial Statements. This is particularly important where Annual Reports proves inadequate. For instance, certain qualitative information are available through questionnaires and through honest response to interview carried out to target group. Hence, we have sought a combination of data from both primary and secondary sources. These have well paid off and are reported in this study.
DISCUSSION OF FINDINGS
Appendix 8 shows list of sample companies and latest Annual Financial Statements and Report years which were verified. Sample size was 132 companies drawn from an estimated population of 59,500 (effective population of 215 companies listed and quoted in the Nigeria Stock Exchange Market). The 132 sample companies are those in Oil & Gas and Manufacturing Sectors. The Manufacturing companies further comprise of those in Agriculture, Automobile & Tyre, Breweries, Building Materials, Chemical and Paints. Others are Conglomerates companies, Food/Beverages & Tobacco, Footwear, Healthcare, Industrial/Domestic Products, Packaging, Printing & Publishing, and Textiles. Added to the list of manufacturing are Foreign-listed Oil & Gas companies and other Emerging Markets known as Second-Tier Securities companies in the Nigeria Stock Market. Evident in the study are:
- Extent of Disclosure of environmental reporting in the context of mere indicative content or descriptive content improved status, or quantitative and monetary content which is most qualitative. In this respect, means of overall of environmental disclosure arequantitative content 1,185.88, descriptive content 1,012.09, and mere indicative content 92.92. Standard deviation is highest for descriptive content 1,485.863, quantitative content 1,173.374 and indicative content of 75.691.
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