10 Questions An Oil and Gas Company Should Ask Their Auditors

With the introduction of International Financial Reporting Standards (IFRS) in Canada the financial landscape will be changing for publicly listed companies in January 2011 or just a little over a year. As such, companies would be wise to review not only how they are audited and how they will report, but also who is actually doing their financial audits for them.

Typical audits do have a lot of rigor built into them, but in most cases audit firms will use a spot check analysis (1 in every 5 or 1 in every 10 results for example) to determine if results are correct. Audit firms do this because they do not have the technology to perform a full verification of your financial results.

In fact, if the audit firms were to employ a more thorough approach and check all results, there are opportunities to uncover potential missed revenue and reserves, which would have a tremendous impact on the overall financial health of your company. On average, when my company Argentis Group performs an operational audit on a company, we expect to find 9% out on proved reserves. 9% out on reserves can have a significant impact on DD&A and thus the overall financials of an oil and gas company.

Listed below are ten questions that you should ask your auditor. I will go into more detail as to why you should ask these questions in subsequent posts.

Top 10 Questions An Oil and Gas Company Should Ask Their Auditors

1. How do your auditors authenticate your master asset list or well list to ensure accuracy?

2. How do your auditors tie up every cost center to your assets?

3. How do your auditors validate that your working interests are accurate in all your cost centers?

4. How do your auditors validate that you are receiving:

a. All revenue due to you?

b. All royalties due to you?

c. All transportation, processing fees and compression fees due to you?

5. How do your auditors validate that you are not overpaying:

a. Capital?

b. Operating expenses?

c. Royalties?

6. How do your auditors authenticate your Asset Retirement Obligation’s and Offset well liabilities?

7. How do your auditors tie up reserves to cash generating units?

8. Do your auditors authenticate well counts for Annual Information Form’s?

9. How can your auditors potentially make your IFRS conversion pay for itself and add asset value to your company?

10. How will your auditors ensure your Cash Generating Unit’s will be authenticated?

The numbers for the top 5 audit firms in Calgary are listed below.

Deloitte – 403-267-1700

E&Y – 403-290-4100

KPMG – 403-777-9999

PWC - 403-509-7500

MNP - 403-444-0150

Give your auditor a call and see if they can answer these questions for you. If they can not provide a thorough check against all results then you should ask them how they are going to do this to ensure accuracy as you move towards IFRS.

Argentis Group can perform a full array of operational audits to assist companies in identifying opportunities to help offset the costs of IFRS for oil and gas companies and also allow you to ensure financial accuracy. Typically, we will find enough value for your company to more that offset the costs and to make you transition to IFRS smoother and potentially allow for greater overall financial strength.

These opinions are mine and may not reflect your view. If you would like to contact me, then please feel free to do so at info@argentis-group.com. Argentis Group assists oil and gas companies with operational audits to identify areas to reduce costs, increase revenues and increase the overall asset value of an oil and gas company.