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Reforming the accounting for oil wells depreciation in Iraq

Vol. 19, Iss. 12, JUNE 2016

Received: 25 March 2016

Received in revised form: 8 April 2016

Accepted: 28 April 2016

Available online: 28 June 2016

Subject Heading: ACCOUNTING SYSTEMS ADAPTING

JEL Classification: Е23, М20, М41, N40

Pages: 16-28

Mohammad B.A. Mosul University, Mosul, Iraq
belalamjad@yahoo.com

Zyleva N.V. Tyumen State University, Tyumen, Russian Federation
zyileva@mail.ru

Importance The Republic of Iraq has the world's second largest oil reserves of the proven status. Exploration and production wells account for a large share of fixed assets of oil companies, and their depreciation is a weighty portion of production costs. Currently, the Uniform Accounting System, which is the Federal Law On Accounting, regulates fixed assets accounting, including wells. However, many of its provisions, including the methods of fixed assets depreciation, require updating.
Objectives The study aims to develop proposals to reform the Iraqi accounting treatment of oil wells depreciation that would meet the requirements of the market and International Financial Reporting Standards.
Methods The study draws on the analysis of accounting standards (US GAAP, IAS 16, PBU 6/01, Uniform Accounting System of Iraq) to compare the options of accrual of depreciation on oil wells, to assess the impact of accounting specifics of the oil industry on the choice of well depreciation methods.
Results To harmonize the Iraqi accounting for production costs in the oil industry, we recommend using the reviewed methodology for depreciation that links indicators of mineral reserves, production volumes and terms of depreciation accrual, and considers the specifics of organization of production in the industry.
Conclusions and Relevance There is a need to reform the accounting for oil wells depreciation within the overall harmonization of the accounting system in Iraq.

Keywords: depreciation, amortization, well, accrual, per unit

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