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Big Oil's Accounting Methods Fuel Criticism

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133724 Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Aug-08-06 07:01 PM
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Big Oil's Accounting Methods Fuel Criticism
Like many U.S. oil companies, Exxon uses an accounting method to value its inventory that has the effect of raising the company's costs when the price of oil is rising. Those higher costs lower net profit and trim Exxon's tax bill. In 2005, for example, the accounting method lifted Exxon's costs by $5.6 billion. If Exxon hadn't used this approach, a back-of-the-envelope calculation shows its net profit could have neared $40 billion rather than the $36.1 billion it reported.

At four other leading U.S. oil and gas companies, the same accounting method raised costs by a combined $6.8 billion in 2005, according to data from research provider Capital IQ.

There is nothing improper or even unusual about the method, known as last-in, first-out -- or LIFO. Companies have used it since the 1930s, and LIFO is permitted for both financial-reporting and tax purposes. But the run-up in oil prices, which leads to higher LIFO-related costs, is fueling debate within tax circles over its use. And lawmakers have tried to do away with the accounting approach to increase the flow of revenue to the government.

An Exxon spokesman said the company's results are "absolutely not" understated and the company is simply following Securities and Exchange Commission and tax rules in its use of LIFO. He declined to comment on any hypothetical profit Exxon might have generated were it not using the accounting method. The spokesman said use of LIFO isn't an oil-company issue; "it affects all U.S. businesses." Any move to repeal LIFO would be "unwise tax policy" that would "adversely impact all industry," he added.
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whistle Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Aug-08-06 07:09 PM
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1. Another good reason why oil production should be nationalized
...we pay through the nose no matter what happens. Who needs venture capital in oil any longer? Fuck em!
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