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Practice Guide to Auditing Oil and Gas Revenues


Acquiring Knowledge of Business and Assessing Risks

Audit procedures typically require auditors to acquire knowledge of the organization and subject matter being audited and to prepare a risk-based audit plan.

In practice, this means that, once the decision has been made to audit financial assurances for site remediation, the audit team should start conducting research and interviewing officials in order to acquire (or further develop) a sound knowledge of business and an understanding of the risks facing the audited organizations. The information collected will be used to determine what the main risk areas are and where audit efforts should be directed.

In addition to information about the mandates and roles and responsibilities of the public sector organizations involved in collecting and managing financial assurances for the remediation of oil and gas wells and facilities, auditors can obtain information on three key subject areas:

  • the fiscal and regulatory environment for oil and gas extraction in the jurisdiction under review, particularly with regard to decommissioning and site remediation;
  • the structure of the industry in the jurisdiction – how many operating companies are there, how big are they and how many wells do they operate? (smaller companies have fewer resources and are more likely to go out of business, increasing the risk of new decommissioning liabilities for governments); and
  • public sector policies and processes that pertain to assessing and collecting financial assurances for site remediation, as well as the resources available to implement relevant policies and programs.

While much of the information related to the first category will be found in legislation, regulations, government websites, and so on, obtaining information belonging to the other categories will likely require auditors to conduct a number of preliminary interviews. At this stage, auditors should be asking questions that do not require extensive research and file reviews to answer. Auditors typically address these more in-depth questions in the audit’s examination phase, once the objective and focus of the audit have been clearly defined. However, an audit team may decide that it would benefit from using an independent expert early on in the audit if it feels that it does not have all the expertise it needs to assess key risks.

For each financial assurance program selected for audit, a number of areas can be examined, including:

Each of these areas is described in more detail in the following pages and some of the controls that could be audited under each area are highlighted.