The company that I chose for this discussion is Chevron, an American
multinational energy corporation.
Report: https://www.chevron.com/annual-report
Chevron and many other energy companies are currently tied into a
strong political power struggle and other global events that may
drastically change the price of oil and the ability to drill for more.
Chevron's 10K states "Crude oil and natural gas reserves are
estimates of future production that impact certain asset and expense
accounts included in the Consolidated Financial Statements"
(Chevron, 2021). They make it very clear that it is “critical” to have
reasonable estimates but they cannot always control the strong
outside forces. Specifically, they list amortization and impairment as
their primary concerns for over/understatements due to the rapidly
changing costs related to drilling, exploration, and gas-producing
properties.
As an auditor, it is important to ensure that estimates are as correct
and up to date as possible. The financials of energy companies tend to
be scrutinized. Ensuring that all accounting methods comply with
SOX is an absolute must. It would be beneficial to run tests to certify
that estimates and reported amounts are matching all other financial
records and purchases.
