Analysis Of Accounting Issues In Osbidian Energy - A Canada-based Oil And Natural Gas Production Company

Background of the company

The issue that has been presented in the question refers to the fact that the corporate organizations have to face accounting issues in the due course of business. This means that a firm might be subjected to fraudulent activities and the absence of the proper internal controls in the corporate entity will result in the corporate organization going bankrupt. This particular study focuses upon one single corporate entity and the fraudulent or the scandalous activity that led to its downfall.

The firm that has been chosen for the purpose of the study is of the name Osbidian Energy and is located in Canada. Previously Known as Penn West Exploration Ltd, Osbidian Energy is a Canada based oil and natural gas production company. It is headquartered in Calgary, Alberta. Founded in 2005, till date it has over 300 employees. Going back to the history, being founded as Penn West Exploration Ltd, it operated its business in 30 areas, employing over 2000 employees with 15 executives. But after it changed into Osbidian Energy, it just has 300 employees with only an executive team of five members.

This particular study aims to look into the internal operations of the corporate entity and analyzes the accounting statement of the organization in order to ensure the fact that the reporting framework has d been prepared in accordance to the general purpose reporting framework.

The Calgary based Obsidian Energy Limited had been previously known as Penn West Exploration Ltd, Penn West Petroleum and Penn West Energy Trust. The corporate organization has its headquarters in western Canada. The oil fields that from where the energy resources have been derived are located in the three key areas of Alberta that are Pembina Cardium, Peace River oil sands and Alberta Viking. The total production of the corporate entity ranges between 31,000  bbl on a daily basis.

It can be further noted here that the corporate entity had been a member of the Toronto Stock Exchange. The company had faced financial difficulties in the financial year of when the prices of the crude oil fell significantly. This had led to a major restructuring of the corporate entity. Moreover, it had been reported that the corporate entity had sold most of its assets over the period of the next two years for the purpose of reducing the debt (Williams and Dobelman 2017).

The background of the company that has been highlighted from the operations that dates back to the financial year of the past. Penn West had been one of the largest producers of oil in Canada. However, it has been noted that the particular corporate entity did struggle to lower the operating costs. The operation costs has been a significant financial metric when looking forward to evaluate the financial health of a corporate entity that deals in oil and Gas Company. The fraudulent activity that has been executed by the management of the corporate entity refers to the fact that had been disclosed by the investors in regards to the financial condition of the corporate entity. The objective of the particular scheme that had been disclosed by the corporate entity referred to the fact that the scheme had been published in order to deceive the investing public for the purpose of understanding the Penn West’s publicly reported operating expenses and the related metrics that have been financial in nature. Moreover, it can be concluded that as a result of the Defendant’s scheme it has appeared that Penn West had been spending a particular amount of money that has been less in regards to the process of extracting the oil out of the ground than it actually would be (Abdullah 2016).

Accounting Issue

Moreover, the chief financial officer had been a member of the disclosure committee of Penn West. Takeyasu had the responsibility of providing the accuracy in regards to the financial statements of the corporate entities. There had been repeated certifications to the SEC in regards to the fact that Takeyasu had not been aware of the problems or the financial issues that have been faced by the corporate entity. It must be noted here that the particular responsibility that had been carried out by the Takeyasu revolved around the fact that he had to look after the internal controls of the particular organization and set up a proper corporate governance structure in the organization. However, instead of fulfilling his duties the corporate entity had carried out the fraudulent activity himself by the managing the essential process for the purpose of hitting a predetermined number and lead to the circumvention of the international accounting standards and the particular internal controls that have been established within the corporate entity. Therefore, it can be concluded that Takeyasu had led to the accounting fraud in regards to the false certifications that has been concealed by the SEC (Abdullah 2016). The news in regards to the U.S. commissions have affected the performance of the Toronto Stock Exchange with the shares that have been dropping more than 10 percent following the announcement of the SEC. It had been further observed that the stock had recovered somewhat to $1.66 or get reduced by 4.6 percent from the beginning of the system. Furthermore, the particular issue that has been carried forward with the three former employees of the firm who have been facing U.S. Securities and Exchange Commission charges for the purpose of the fact that the employees had altered their roles in an alleged accounting fraudulent issues. The regulatory body or the watchdog in the U.S. market has been of the opinion that the Canadian energy company had committed the fraudulent activity of moving the hundreds of millions in expenses from the ledger account belonging to the financial year of 2012 to the financial year of 2014 for the purpose of reflecting the fact that the firm had been involving itself in spending lower amounts of money for the purpose of extracting the oil from the ground.

It had been further reported that the objective of the scheme had been for the purpose of deceiving the public who have been investing in the corporate entity. The corporate entity had been selling the assets and led to the dramatically shrinking of the asset portfolio of the corporate entity for the purpose of reducing the debt and surviving the downturn of the oil price. It had been committing the operations in one of the four provinces and now operates only in Alberta.

Conceptual Framework

The conceptual framework that has been established by the accounting regulatory bodies refer to the particular framework that has been utilized for the purpose of preparing the financial reports of the corporate entities. This means that the accounting regulatory bodies have been of the opinion that the annual reports should be such that the financial information that has been reflected by the financial reports is easily understood by the different stakeholders of business. In most cases, the most understandable way to provide that information is to utilizea single measurement in both the financial position statement and the financial performance statement, and to utilize the other basis of measurement.

Moreover, the financial reports that are prepared by the corporate entities should reflect the essential features like comparability, reliability and other essential features.The objectives of the general purpose reporting framework can be identified with the help of the following features:

• Stewardship – the concept of stewardship refers to the fact that the users of the accounting statements of a particular organization along with the other stakeholders of business should be able to derive the related information from the financial statements of the organizations. This means that the financial reports should be designed in such a way that the feature of stewardship is reflected in the financial report of the organization(Kaur, Aggarwal and Gupta 2017).
• Prudence – the concept of prudence refers to the particular quality of the accounting statements that deals with the uncertainty of the financial amounts that have been included in the financial reports of the corporate organizations (Williams and Dobelman 2017).
• Substance over form –the particular concept of substance over form refers to the quality of the financial information that has been included in the financial reports of the corporate organizations. This means instead of designing or highlighting the successful achievements of the corporate entities the firms should highlight the losses or the ventures of the corporate entities that have failed. Moreover, the financial information that has been reflected in the financial report should convey financial information that is genuine in nature.
• Reliability - the particular feature of reliability states the fact that the financial information that has been conveyed through the annual report should possess a certain degree of reliability(Kaur, Aggarwal and Gupta 2017).
• Understandability and the related issue of complexity – this is another feature that the financial reports should reflect. This means that the understandability of the financial reports should be simple so that all the related entities or the stakeholders can derive the required financial information from the annual reports of the corporate entities
• Materiality – the issue of materiality is another important factor that should be considered for the purpose of ensuring that the financial statements has been prepared with a sufficient degree of integrity for the purpose of ensuring the fact that the accounting statements reflect the fair view of the corporate entity(Kaur, Aggarwal and Gupta 2017).

The critical analysis of the accounting statements can be carried out with the help of the following pictures that have been provided below:

 

Figure: Financial Statements

Source: (Williams and Dobelman 2017)

The financial statements that have been reflected above reveal the fact that the revenue that has been derived by the firm has followed a declining graph. This means that in the financial year of 2015 the firm had acquired a profit of $1187 million. However, in the financial year of 2017 that figure has dropped to $437 million. The balance sheet of the corporate organization on the other hand reflects the fact that the firm has been maintaining an unstable position since the financial year of 2015. Therefore, proper initiative should be taken by the management of the corporate entity in order to determine the fact that the corporate entity gains the required amount of profit from the market(Grimm and Blazovich 2016).

Moreover, it has been observed that the cash flow that has been derived by the corporate entity has resulted in a negative amount. This means that the firm has incorporated an outflow of cash at the end of the financial year which indicates the fact that the liquidity position of the firm is also not stable.

 

Figure: Share price graph

Source:(Grimm and Blazovich 2016)

The share price graph reflects the fact that the graph has been diminishing gradually for the purpose of the fact that the firm has recently undergone a crisis in regards to a particular scandal. Moreover, steps should be taken in order to revive the financial position (Grimm and Blazovich 2016).

Conclusion

The particular conclusion that has been derived refers to the fact that the accounting statements of the firm has been prepared in accordance to the qualitative and quantitative characteristics of the financial report that has been mentioned in the general purpose reporting framework.

References

Abdullah, A.A., 2016. Financial Statement Analysis for Kier Group PLC. Global Journal of Management And Business Research.

Bruce-Twum, E. and Mensah, C.C., 2015. Financial Statement Analysis.

Dalnial, H., Kamaluddin, A., Sanusi, Z.M. and Khairuddin, K.S., 2014. Detecting fraudulent financial reporting through financial statement analysis. Journal of Advanced Management Science, 2(1).

Grimm, S.D. and Blazovich, J.L., 2016. Developing student competencies: An integrated approach to a financial statement analysis project. Journal of Accounting Education, 35, pp.69-101.

Kaur, M., Aggarwal, N. and Gupta, M., 2017. An Investigation into Returns from Financial Statement Analysis among High Book-to-Market Stocks. Indian Journal of Economics and Development, 13(2), pp.353-358.

Pappa, A., 2015. Financial statement analysis of a multinational company and equity valuation of computer-based technology group.

Williams, E.E. and Dobelman, J.A., 2017. Financial statement analysis. World Scientific Book Chapters, pp.109-169.