BusinessCorporate FinanceAnalysts dismiss FRRP warning on oil figures

Analysts dismiss FRRP warning on oil figures

The Financial Reporting Review Panel fires broadside over interpretation of accounting standard on reporting financial performance

City analysts have said they are unconcerned by the omission of key
information from the accounts of oil and gas companies, even though the UK’s
financial reporting watchdog has warned the industry that it must mend its ways
and begin including the figures.

The Financial Reporting Review Panel has fired a broadside at the sector over
its interpretation of an accounting standard on reporting financial performance,
which means they must report operating profits for certain key operations.

But a City analyst has claimed that such issues are of little concern to the
market, despite the FRRP arguing that current practice means account users
cannot analyse the impact of an acquisition and are unable to properly assess
future income.

Al Stanton, oil analyst at Bridgewell Securities, said cashflow was of much
more importance at the moment than such figures and that incorporating full
disclosures from, for example, Shell or BP would create a huge and less
manageable model on which to base assumptions.

In its warning, the FRRP said: ‘A number of companies in the oil and gas
industry are adopting a narrow definition of what constitutes an operation in
this sector.’

The result is ‘non-compliance with some of the disclosure requirements of
financial reporting standard 3’.

The standard requires companies to disclose the separate aggregate results
from continuing operations, acquisitions and discontinued operations, to the
level of operating profit. But some in the industry have stated that the
disclosure guidance only comes into effect after it has determined that it has
made the acquisition of an operation. Not so says the FRRP.

No specific companies are mentioned by the report, but those that continue to
flout the rules risk exposure for use of the practice, and potential sanction.

Earlier this year, the FRRP fell into dispute with the City over the lack of
tip-offs from investors and analysts, who felt they should not have to do the
panel’s job for them.

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