Computing and Information Systems - Theses

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Start date: 2000 × End date: 2009 × Author: Al Jabr, Yahya A. ×

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    Accounting conservatism: evidence from the oil and gas industry
    Al Jabr, Yahya A. ( 2004)
    Prior evidence in the oil and gas industry suggests that investors, when assessing firm value, seem to distinguish between different degrees of accounting conservatism that result from the application of the successful efforts (SE) method versus the full cost (FC) method. However, research addressing the valuation implications of accounting choice in the oil and gas industry primarily investigated periods prior to the issuance of SFAS 121. The effect of SFAS 121 on accounting conservatism in the oil and gas industry and hence on the usefulness of the SE method, relative to the FC method, remains untested. This study extends the existing literature by re-examining the effect of accounting conservatism on the usefulness of accounting numbers produced by SE and FC methods during the period 1995-2001, a period in which both SFAS 121 and the ceiling test rules were applied. Empirical results show that in an environment of both SFAS 121 and the ceiling test, there is no difference between SE and FC firms with respect to conservatism associated with the application of accounting rules. Moreover, the results show that the usefulness of accounting numbers to investors does not differ across SE and FC methods. That is, investors attach no valuation premium of one method over the other in the oil and gas industry. This examination provides updated evidence that should be of interest to regulators and standards setters.