Auditing of ExxonMobil’s pre-contract costs should be undertaken by a multi-disciplinary team

Dear Editor,

Please allow me to respond to a letter by Mr. John Seeram titled  `The Auditor General should be conducting the audit of ExxonMobil’s pre-contract costs’ published in the Sunday Stabroek,  Sept 2, 2018.  In his letter Mr. Seeram erroneously conflated a financial audit with a cost recovery audit.  Here is a direct quote from Mr. Seeram referring to the cost recovery audit. “The end result will be the issue of an Audit Opinion on ExxonMobil’s Financial Statements pertaining to pre-contract costs. Such an Opinion will be an Unqualified, a Qualified, a Disclaimer or an Adverse one by the Audit Firm and will be required to be concurred by the Auditor General. This assertion by Mr. Seeram is grossly misleading and demonstrates a fundamental misunderstanding or lack thereof of the issue at hand.

A financial audit is very different in scope and intent from a cost recovery audit. A financial audit is usually undertaken by an independent accounting firm for the purposes of expressing an opinion on an entity’s financial statements.  The intent is to determine whether the financial statements taken as a whole  represents fairly the financial position of the entity being audited.  The result of this is an audit opinion.

A cost recovery audit on the other hand is designed to determine the validity, accuracy and legitimacy of claimed costs, and should be undertaken by a multi-disciplinary team with varying expertise to include legal, finance and accounting, petroleum engineers and as well as others.  Pre contract costs in the oil exploration business typically  fall into two general categories – Finding costs: Cost of Geological and Geophysical (G&G) work; Cost of Licences, Signature bonuses, cost of drilling and exploration, and development costs : Cost of acquiring, Constructing, Installing production facilities and drilling development wells.  Auditing of these costs is indeed a non- trivial matter.  Establishing the veracity of some elements of these costs may be straight forward; however establishing the same for other cost elements can be very complex and could require Subject Matter Experts (SME)  in areas outside  those that required in a traditional financial audit.

Yours faithfully,

Floyd Haynes

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