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Practice Guide to Auditing Oil and Gas Revenues


Challenges Involved in Auditing Financial Assurances for Site Remediation

In 2012, the International Organization of Supreme Audit Institutions (INTOSAI) surveyed supreme audit institutions’ experience in auditing extractive industries. The survey identified many challenges in auditing extractive industries, including:

  • the technical complexity of extractive industries,
  • lack of knowledge of business processes in the extractive industries,
  • the need for capacity building and retention of specialized staff within audit offices, and
  • mandate limitations.

Some of the challenges are discussed below, under the following categories:

  • expertise,
  • site visits, and
  • access to information.

The INTOSAI Working Group on the Audit of Extractive Industries

In the 2012 INTOSAI survey, many audit institutions expressed a need for more knowledge of extractive industries and for a forum to exchange experiences auditing extractive industries. As a result, INTOSAI established a new Working Group on Audit of Extractive Industries (WGEI) to promote exchanges and to support the development of audit guidance and best practices. The WGEI held its first meeting in Uganda in 2014.

Expertise

The oil and gas industry is a complex, often heavily regulated sector. Auditors who intend to audit financial assurances for site remediation may need access to specialized knowledge and expertise to conduct their audit. Depending on the audit focus, a team may need the help of an engineer, a securities specialist, a lawyer, or a data-mining expert.

However, finding an expert for an audit engagement may be difficult, especially if the field of expertise is very technical and if the sector is undergoing a period of rapid growth. The necessity for experts to be independent from oil and gas companies is challenging because most active experts will have links with the industry. For this reason, auditors may consider hiring a retired expert as a consultant.

Another option is for an audit office to have one or more individuals with in-depth knowledge of oil and gas business processes on staff (or to train an individual to become a specialist in this field). The problem with this option is that these specialists will often be able to find better-paying jobs in the oil and gas industry. As a result, it may be difficult for an audit office to retain sufficient expertise on the oil and gas sector in-house.

Site Visits

Performance auditors often develop their knowledge of business of a new area by conducting site visits to see relevant business activities first-hand and to meet knowledgeable staff and managers on the ground. With oil and gas extraction sites, there may be cases where this would be very costly or would involve complex logistics because oil and gas fields are often located in remote areas, far from cities and transportation hubs. There may also be security concerns or seasons in which weather conditions would make travel even more difficult.

Access to Information

There may be some situations where auditors will have difficulty obtaining the required information to reach a conclusion on an audit criterion.

Auditors will not usually need to access the records and data of private oil and gas companies to conduct their audit, but should this need arise, they should not take for granted that private companies will collaborate with their audit, especially if the audit office does not have a clear legal mandate to access such information.

Another potential challenge related to access to information is when auditors decide to assess whether the decision to adopt a particular financial assurance program was evidence-based. In such a case, it is possible that the required information will not be provided because it is considered to be subject to Cabinet confidence (meaning information for the members of the governing council of ministers only).

Finally, auditors may have trouble accessing information from other jurisdictions if they decide to benchmark their jurisdiction’s practices against those in other jurisdictions. Indeed, it is possible that the extent of information they can obtain in their own jurisdiction because of their office’s legal mandate will prove unattainable for other jurisdictions where their mandate does not apply. Because a fair benchmarking process requires comparing similar information from all selected jurisdictions, disparity in information quality and quantity may mean that no useful results can be drawn from the exercise.