Decision-Usefulness of Oil and Gas Historical Cost and Supplementary Present Value Disclosures - A Revisit of the Misspecification Hypothesis

摘要

In the oil and gas (O&G) industry, conventional historical cost (HC) disclosures are augmented with supplementary reserve quantity and reserve-based present value (PV) disclosures. This paper revisits the HC versus PV measures value-relevance controversy: a consideration of whether HC and PV disclosures provide comparable decision-useful information (see Boone, 2002). The PV disclosures are required because of underlying fundamental disagreements over the relative suitability of available HC methods for accounting for exploration and evaluation costs (see SFAS 69, 1982). The analysis in mis paper results in findings consistent with those of Boone (2002), that subject to appropriate corrections for model misspecifications, PV disclosures are as value-relevant as HC disclosures. The results provide fresh insight for examining disclosure issues in the industry. For instance, if PV measures were at least as value-relevant as historical cost measures, preparers of financial statements may have the same motivation to smooth PV measures to the same extent that is deemed probable for HC-based income. Thus, this study represents a potential starting point for further income smoothing research in the industry.