PetroChina Company Limited (PetroChina) was established as a joint stock company under the company law of the People’s Republic of China in 1999 as part of the restructuring of China National Petroleum Corporation. PetroChina is an integrated oil and gas company with operations in virtually every aspect of China’s oil and gas industry, including exploration and production, refining and marketing, natural gas transmission, and petrochemicals. PetroChina manages some 70 percent of China’s oil and gas reserves and 45 percent of its oil-refining capacity. Its shares were listed on the Hong Kong and New York Stock Exchanges in 2000.
QUESTION
Business Administration Department
ACCT 304 International Accounting
SEM 402 Section 01
Case Study
(20 Marks)
Name: ———————— I.D Number: —————-
Date of Submission: Week 13
Wednesday April 15, 2020
Global Accounting and auditing Standards
PetroChina Company Limited
PetroChina Company Limited (PetroChina) was established as a joint stock company under the company law of the People’s Republic of China in 1999 as part of the restructuring of China National Petroleum Corporation. PetroChina is an integrated oil and gas company with operations in virtually every aspect of China’s oil and gas industry, including exploration and production, refining and marketing, natural gas transmission, and petrochemicals. PetroChina manages some 70 percent of China’s oil and gas reserves and 45 percent of its oil-refining capacity. Its shares were listed on the Hong Kong and New York Stock Exchanges in 2000.
You are an equity research analyst and have been asked to prepare a research report on PetroChina. Your business strategy analysis indicates that PetroChina’s sales growth and financial performance can probably be sustained.
However, although your qualitative analysis has yielded promising results, you are concerned that your financial analysis will be difficult due to accounting and audit-quality issues.
You start your analysis by becoming familiar with the accounting principles used to prepare PetroChina’s financial statements filed with the U.S. Securities and Exchange Commission. You are encouraged that the company states that its financial statements conform to IFRS standards, but realize that how accounting standards are applied is as important as the standards themselves.
Required
PetroChina’s financial statements filed with the U.S. Securities and Exchange Commission may be found at the following link: (or you can search on google)
http://www.petrochina.com.cn/ptr/rdxx/201904/a2ef8b932f8e4c7f92b590d0aa6855f4/files/881a3cf69df641bc9a52c98da44327d2.pdf
Examine Petro China’s Note 4, “4 PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES,” and read about the IFRS Standards on the IFRS Web site (https://www.ifrs.org/) and the IAS Plus Web site (https://www.iasplus.com/en/resources/ifrsf/iasb-ifrs-ic/iasb).
- As much as possible, assess the extent to which PetroChina’s accounting principles conform to IFRS standards.
- How reliable is your assessment?
- What further information would help your assessment?
- Does the auditor’s report provide information useful in your assessment? Explain.
ANSWER
PetroChina’s Accounting Principles and Conformity to IFRS Standards
Introduction
PetroChina Company Limited, established in 1999, is a major integrated oil and gas company operating in China’s oil and gas industry. As an equity research analyst, the task at hand is to assess PetroChina’s accounting principles and their conformity to International Financial Reporting Standards (IFRS). While the company claims adherence to IFRS standards, it is crucial to understand how these standards are applied in practice. This essay aims to examine PetroChina’s accounting principles, evaluate their alignment with IFRS standards, assess the reliability of the assessment, identify further information requirements, and determine the usefulness of the auditor’s report in this evaluation.
Assessment of PetroChina’s Accounting Principles
To evaluate PetroChina’s accounting principles, an examination of their Note 4, “Principal Accounting Policies and Accounting Estimates,” is necessary. This section outlines the specific policies employed by PetroChina for measuring and recognizing assets, liabilities, revenues, and expenses (Hu, 2008). Concurrently, reference to the IFRS website (https://www.ifrs.org/) and the IAS Plus website (https://www.iasplus.com/en/resources/ifrsf/iasb-ifrs-ic/iasb) is essential to understand the IFRS standards and their requirements.
By comparing PetroChina’s accounting policies with the relevant IFRS standards, it is possible to determine the extent of conformity. Attention should be given to areas such as revenue recognition, lease accounting, financial instruments, and others to ensure alignment with IFRS guidelines.
Reliability of the Assessment
The reliability of the assessment depends on the depth of analysis and the accuracy of available information. By scrutinizing PetroChina’s financial statements and comparing their accounting policies with IFRS standards, an initial assessment can be made (Čulík, 2016). However, for a more reliable evaluation, a comprehensive review of the company’s financial statements, including footnotes, disclosures, and management’s discussion and analysis (MD&A), is necessary. Seeking input from accounting professionals and consulting additional sources, such as academic literature and professional accounting bodies, can also enhance the reliability of the assessment.
Further Information Requirements
To improve the assessment, additional information can be considered
Comparative Analysis: Conduct a comparative analysis of PetroChina’s accounting policies with those of similar companies in the industry. This analysis can shed light on unique practices or potential deviations from IFRS standards.
Expert Opinions: Seek guidance from accounting experts or professionals well-versed in IFRS standards. Their insights and validation can strengthen the assessment.
Regulatory Guidance: Stay updated on any regulatory guidance or amendments to IFRS standards that may impact PetroChina’s accounting practices.
Company-Specific Information: Obtain further information about PetroChina’s specific transactions, significant accounting estimates, and any subsequent events that may influence their financial statements.
Usefulness of the Auditor’s Report
The auditor’s report should be evaluated to determine its usefulness in the assessment. While the primary focus of the auditor’s report is to express an opinion on the fairness of the financial statements, it may provide valuable information. Paying attention to any qualifications, disclosures, or additional comments made by the auditor can highlight potential concerns or deviations from IFRS standards (Blackwell et al., 2000). However, it is important to note that the auditor’s report may not offer detailed information on specific accounting policies.
Conclusion
In conclusion, assessing PetroChina’s accounting principles and their conformity to IFRS standards requires a comprehensive analysis of their financial statements, including Note 4. Comparing PetroChina’s policies with IFRS standards, seeking expert opinions, and obtaining additional information about the company’s transactions and events can enhance the assessment’s reliability. While the auditor’s report may provide some useful insights, it primarily focuses on expressing an opinion on the financial statements’ fairness. To ensure a robust evaluation, multiple sources of information should be considered, and professional expertise should be utilized.
References
Blackwell, B. G., Brown, M. E., & Willis, D. W. (2000). Relative Weight (Wr) Status and Current Use in Fisheries Assessment and Management. Reviews in Fisheries Science, 8(1), 1–44. https://doi.org/10.1080/10641260091129161
Čulík, M. (2016). Financial Situation Assessment of the PetroChina Co. Ltd. https://dspace.vsb.cz/handle/10084/112868
Hu, W. (2008). Necessity and feasibility of PetroChina mature field redevelopment. Petroleum Exploration and Development, 35(1), 1–5. https://doi.org/10.1016/s1876-3804(08)60001-4

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