Why Transparency in Accounting?

Despite how far the field has advanced into the digital sphere, the Oil and Gas industry is still overrun with legacy software notorious for a lack of transparency. In addition, many companies are still using manual processes such as physical spreadsheets to manage their assets alongside these legacy databases. This lends to control issues, data integrity concerns, and potential legal trouble. Transparency— or the lack thereof— impacts many facets of your business, including your year-end processing. Here are a few of the ways transparency shapes your company functions:

Investing

To be able to make wise investment decisions that will benefit both parties in the future, investors need to be able to understand the baggage a company may bring to the table. If a company is withholding data in its financial statements, investors have less information about the company’s fiscal health. Buying stock in a company that hides information is undoubtedly risky.

An overly complex business structure is often a warning sign that a company is trying to hide something that might scare investors away, such as a large amount of debt. Investors want to work with companies that keep their statements concise and easy to understand. For larger companies with several businesses under their belts, keeping each business’s financial statements separate is key for maintaining transparency.

GAAP Accounting

Transparency in accounting is highly important for investors, but it's equally important— if not moreso— to the company itself. Any United States publicly traded company is required to adhere to GAAP’s 10 principles. GAAP, or Generally Accepted Accounting Principles, is a generally accepted set of standards, rules, and procedures established to regulate corporate accounting and prevent fraud. Following these principles as intended creates a level of transparency achieved through consistency, diligence, and integrity. To learn more about each of the 10 principles and what they mean, you can check out our GAAP Accounting blog.

For a publicly traded company, violating these principles will result in a hefty fine from the Securities Exchange Commission (SEC). Private companies aren't required to adhere to GAAP, but lenders, creditors, and investors still expect them to follow GAAP standards. They will likely look poorly on any violations they discover.

SEC Requirements

In addition to GAAP, the SEC has other requirements for publicly traded companies that enforce transparency and safeguard investors from fraud. According to their website, the SEC rules that a company must file annual reports on Form 10-K, and all statements within that report must be audited. Publicly traded companies must also file quarterly reports on Form 10-Q. Any significant events that occur within a business, such as a change in leadership, the hiring of a new accountant, or the completion of an acquisition or disposition of assets, must also be reported on Form 8-K to notify shareholders. All of these forms must be verified by the company’s CEO or CFO before submission.

These filings are tedious, especially due to the required audited financial statements that make up Form 10-K. Auditing a financial statement often takes months when factoring in time spent on planning, fieldwork, and compiling the audit report. An independent auditor has many projects they are working on alongside your audit. If anything goes wrong with any of those projects, you might experience a delay. Any delays would force you to file a Form NT 10-K and risk a drop in stock price and lack of trust with investors.

However, the process is much easier and more cost-effective when you work with an outsourced accounting service. Working with PetroLedger means that we will be consistently maintaining your general ledger throughout the year. Our professionals can handle your year-end processing with fewer fees and a much faster turnaround time. Our GAAP-trained accounting professionals will work year-round to ensure that your books are ready for your quarterly and annual filings. 

How can we help?

With PetroLedger, you can also say goodbye to inefficient legacy accounting software. If you aren't already partnered with one of our software partners, we will help you convert to newer, more reliable software that is scalable, easily integrated with other software, flexible with user standard adjustments, and, above all else, transparent. The software we use ensures that you have a running audit trail and prevents data silos. 

Interested in switching to oil and gas outsourced accounting? Contact our Sales Team for more information about our software partners and how PetroLedger will ensure that your books are always transparent and appealing to investors. If you would like to read more accounting insights from PetroLedger, check out our blog!