Audit evidence in production sharing agreements

The start of the review of the joint accounting account for production sharing agreements is to conduct an independent audit to determine whether the costs reflected in the joint accounting account comply with the material aspects of the production sharing agreement.

Typically, auditors prepare 2 copies of the report (one detailed) for the investor and the other (less informative) for the government body of the party to the production sharing agreement.

As a rule, the auditor's formal conclusion on the compliance of the joint account and the correctness of the reflection of expenses does not provide a complete picture of the investor's activities, which makes it impossible for the inspecting authorities of the parties to the production sharing agreement to attach the audit report to the list of references in the report on the verification of the oil and gas activity account.

The international audit report contains the basic skeleton of the study, which eliminates the basis for its appeal. The general conclusion that there is no fraud in the investor's activities cannot be relevant to the concept of maintaining a joint account for oil and gas management expenses in strict accordance with the production sharing agreements.

A solution to this problem may be for the state to recommend to the investor to indicate in contracts for organizing and conducting an international audit a list of audit evidence used.

According to paragraph 7 of the International Auditing Standard 200. The overall objectives of the independent auditor and the conduct of an audit in accordance with international auditing standards (hereinafter referred to as the International Auditing Standard 200): «international auditing reporting standards require that the auditor, throughout the planning and performance of the audit, and, among other things, detect and evaluate errors, based on an understanding of the entity and its environment, including the entity's internal control system, formed an opinion on the financial statements based on the conclusions drawn from the audit evidence obtained».

The International Standard on Auditing 200 includes as audit evidence both information contained in the accounting records underlying the financial statements and other information that supports management's assertions and any information that contradicts such assertions (Article 13(b), paragraph A. 30).

At the same time, the disclosures in the auditor's report should include explanatory or descriptive information, set out as required, expressly permitted or otherwise permitted by the applicable financial reporting framework, either in the notes or included therein by cross-reference.

For examples of financial statement disclosures in the notes, the International Standard on Auditing 200 provides for the following mandatory references: «Balance Sheet», «Income Statement or Statement of Operations», «Statement of Retained Earnings», «Cash Flow Statement», «Statement of Assets and Liabilities excluding Equity», «Statement of Changes in Equity», «Statement of Income and Expenses», «Statement of Operations by Product Line».

The term «financial statements» usually refers to a complete set of financial statements as defined by the requirements of the applicable financial reporting framework but may also refer to a single financial statement (A8, A29 of ISA 200).

In addition, ISA 200 recognizes that in some jurisdictions, applicable law or regulation may require auditors to express opinions on other specific matters, such as the effectiveness of internal control or the consistency of a separate management report with the financial statements (A1).

The theoretical problem of applying international auditing standards and international financial reporting standards remains unresolved, because the quasi-character of the joint accounting account is devoid of a financial basis, but is exclusively a source of generalizations of the investor's accounting and management actions.