OIL AND GAS ACCOUNTING PRACTICAL CHALLENGES AND SOLUTIONS IN NIGERIA
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OIL AND GAS ACCOUNTING PRACTICAL CHALLENGES AND SOLUTIONS IN NIGERIA
Chapter One: Introduction
1.1 Background of the Study
Nations and ethical business managements are increasingly concerned with and focused on the necessity for environmental accounting. It became one of the most pressing issues on the agendas of governments and enterprises in the early 1990s, for a variety of reasons originating both within and outside the firm, notably at the global level (Okoye and Ngwakwe:2004:220-235).
Many governments throughout the world have enacted rules and regulations to safeguard the environment, and Nigeria is slowly reacting.
In response to the growing concern for environmental protection, many laws and regulations were developed, including the Environmental Impact Assessment Act of 1992 and the Department of Petroleum Resources (DPR) Environmental Guidelines and Standards for the Petroleum Industry in Nigeria (EGASPIN: 2002).
These require corporate management to examine the environmental impacts of all internal business actions. Furthermore, all organisations monitored by Nigerian environmental policy bodies are expected to make well-considered decisions.
Environmentalists agree that it may be more cost effective and advantageous for businesses to invest in pollution prevention or clean technology rather than pollution cleanup.
It has also been observed that environmental rules are shifting from a ‘command and control’ approach to market-driven ones, with pollution prevention alternatives replacing pollution cleaning approaches.
As a result, identifying the most effective pollution avoidance strategy may necessitate extra management considerations. Such
Shield, Beloff, and Heller (1996:5) believe that capital expenditures, such as the development of markets for emissions allowances, may require companies to determine whether it is more cost effective to buy or sell these allowances, given the cost of avoiding the covered emissions. This is in reference to carbon trading and sequestration.
Poverty and systematic environmental damage are widely acknowledged to be the world’s two most pressing issues. These two challenges have the potential to destroy the entire planet.
It is believed that the world’s poverty rate, particularly in less developed countries, is primarily attributable to an inability to manage an environment that is rapidly degrading.
While industrial pollutants and effluence provide a significant hazard to the atmosphere, native farmers pose an equal damage to the ozone layer, seas, oceans, and land.
Local farmers also systematically degrade biodiversity by continuing to use crude farming methods, falling trees and burning brush, and non-sustainable fishing methods that do not replenish natural resources.
Environmental issues for economic and cost accounting have also been contentious, despite being designated as a topic for discussion for the previous four decades.
This is due to a lack of agreement on standard criteria for determining the value of non-marketed, non-monetized resources and their impact on externalities.
Previously, corporate organisations valued business issues according to profitability. Companies have also classified all indirect costs as overheads, without regard for the environment.
Traditional accounting practice has not recognised environmental accounting for the use of materials, water, energy, and other natural resources. Furthermore, conventional accounting has not provided for this practice, notably for
Account for the influence on externalities. According to B. Field and M. Field (2002:xv), little was known about environmental depletion and degradation until a few well-meaning people in developed countries realised that it was pointless to have large corporate profits and material well-being if they came at the expense of the ecosystem that sustains us on a large scale.
It became evident that degradation, pollution, and increased ecosystem destruction, as well as the depletion of nonrenewable environmental biodiversity, would pose a serious threat to human survival. B. Field and M. Field conclude that “what were once localised environmental impacts, easily rectified, have now become widespread effects, which may very well turn out to be irreversible.”
The global community must examine, assess, and implement accounting reporting for raw materials, energy consumption, and the use of natural resources, all of which have systematically degraded the environment.
Furthermore, the harmful influence on biodiversity caused by human and industrial activity, as well as the necessity for states to protect the environment, have led to the creation of global legislation.
However, these regulatory environmental regulations only demand voluntary disclosure of environmental information in financial statements regarding industrial emissions, degradations, industrial waste, and all activities that have a detrimental influence on the environment.
As a result of the significant impact on the ecology of the oil and gas producing environment of Nigeria’s Niger Delta, which has caused political unrest in the area, Owolabi (2007:63) believes that political unrest in the Niger Delta cannot be avoided until there is a policy that incorporates environmental concerns into the nation’s oil and gas industry planning, management, and decision making.
On environmental costs, he writes that ‘Costs and benefits need to be appropriately assigned, a clear distinction drawn between income generation and the drawing down of capital assets through resource depletion or deterioration.’
Notable studies in environmental accounting include the Ontario Hydro Full Cost Accounting (1993) and the US Environmental Protection Agency’s AT &T Green Accounting (1993).
Furthermore, industrial green substance emissions (carbon dioxide, methane, and hydrofluorocarbons) and the penalties imposed by the Kyoto Protocol (December 1997) have made it necessary for corporate organisations to seriously consider and act on corporate capital projects and investments.
Given the increasing focus on environmental issues, as well as the fact that the oil and gas, mineral extractive, and manufacturing sectors all have a significant environmental impact
this study investigated an assessment of Environmental Accounting in these Nigerian economic sectors. This is supposed to improve the effectiveness and efficiency of cost measurement and reporting for corporate decision making.
Aside from the introduction chapter one, chapter two focuses on a literature analysis of current environmental accounting concerns, a conceptual framework, and identified gaps.
The third chapter defines the methodology, which includes the research design, study population, sampling process, and variable description and measurement.
The fourth part covers data analysis and research presentations, while the fifth and final chapter gives a summary of the study’s findings, conclusions, and recommendations.
1.2 Statement of the Problem
Canada, Norway, the Netherlands, the United Kingdom, and the United States of America have taken the lead in promoting degradation and pollution prevention, control, and the importance of environmental safety (Skillius, A and Wennberg, U: 1998:54-59; IFAC: 2005:9). Leading developing countries include Zimbabwe, Namibia, the Philippines, and Indonesia. They have
led the way in advocating for legislation that meet the need for environmental cost accounting and transparency. The necessity for corporations to build environmental cost responsiveness and publish environmental information in yearly financial reports has grown significantly.
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