Oil Search Limited Annual Report Analysis

Oil Search Limited Annual Report Analysis 1
OIL SEARCH LIMITED ANNUAL REPORT ANALYSIS
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Oil Search Limited Annual Report Analysis 2
Introduction
The chosen Company for this annual report analysis is Oil Search Limited. The
analysis is based on the Company’s 2017 Annual report. The first area of focus for the
analysis include the identification and description of the accounting concepts giving
examples from the report. The analysis will also refer to the conceptual framework (CF)
and discourse over measurement in accounting to discuss the issue of measurement
with examples from the Company. The final focus of this analysis to state the
understanding of relevance and representational faithfulness with respect to useful
information of financial statement and determine if one is more vital than the other when
accounting for liabilities and asset with examples from the Company is considered.
1. Accounting Concepts
Accounting concepts are the rules which are adhered to by the Company as it
prepares all accounts alongside financial statement. Four fundamental accounting
concepts include accrual concept, going-concern concept, consistency concept, and
prudence concept (Zeff, Van der Wel and Camfferman 2016). Other minor concepts include,
accounting period, accounting equation, entity, cost basis, lower cost of market value,
full-disclosure, maintenance of capital, materiality, matching, objectivity, realization,
money measurement, and unit of measurement (Cannon 2019).
Accruals concept implies that expenses and revenue get recorded as they
happen as opposed to when the cash is paid out or received. Consistency concept
implies that one the accounting method is selected, such a method need to be utilized
unless a sound reason exist to otherwise. Concept of going-concern means that
business for which preparation of account is done remains in worthy condition and shall

Oil Search Limited Annual Report Analysis 3
endure to be in operation in conceivable upcoming. Prudence concept is similarly called
conservation concept where revenue as well as profits are added to balance sheet
solely as they stay realized unless a sensible “certainty” exist of being realize, however,
liabilities get added to balance sheet when there is a reasonable “likelihood” of
incurrence (Laux 2016).
Applying these concepts to Oil Search Limited, it is established that the Company
is using a range of accounting concepts. The first concept used by the Company is the
consistency concept. The example from the Annual Report is that the preparation of
FSs of subsidiaries is done for one reporting-period as a parent entity, utilizing
consistent accounting policies. Another concept used by Oil Search Limited is
accounting period concept. This is demonstrated in the Annual Report since the
Company follows a 12 month period when preparing its financial accounts and FS. The
accounting period concept is demonstrated in the Annual Report which is ended on
December 31.
Another accounting concept used by Oil Search Company is the going-concern.
This is because the assets of Company are valued on the non-liquidation framework
alongside using historical cost for various valuations. Moreover, the Company is
amortizing FA alongside intangibles over the useful life instead of over a smaller time in
anticipation of prompt liquidation. Another concept used by Oil Search Limited is the
money measurement since the unit of exchange as well as measurement that account
the Company transaction uniformly uses dollars in the FS (Maskell, Baggaley and
Grasso 2016).

Oil Search Limited Annual Report Analysis 4
Another accounting concept used by Oil Search Limited is entity concept. The
justification for this concept from the annual report is that it is assuming that FS and
remaining accounting-information is only for this definite business enterprise that is
separate from its proprietors. This is why Company has expressed the examination of
its transactions (business) relating to revenue alongside costs in form of vicissitudes in
its financial circumstances. Also, liabilities along with assets of Oil Search Company
dedicated to the activities of business are the entity’s liabilities beside assets. Thus, the
Company is only reporting the transaction of Oil Search Limited instead of transaction of
its owners.
Oil Search Company is also using the cost concept by measuring considerations
transferred in acquisition at the FV as identifiable acquired net-assets. The accrual
concept is also used in the Oil Search Limited. This is justified in the Annual Report
since revenue alongside expenses get recorded when they take place instead of when
cash is received or paid out. Specifically, the revenue becomes recognized when
substantial risk alongside reward of the possession have been already transferred to a
customer, consideration stays probable and the associated costs alongside likely return
of good is estimated reliably.
Another accounting concept used in the Company is materiality. The implication
of this concept is that transactions alongside events insignificant or immaterial effects
need not be recorded as well as reported in FS.
2. Measurement Issue
Conceptual Framework (CF) gives provision for measuring elements in FS.
Measurement entails assignment of monetary amounts at which an element of FS is to