Today’s essay will discuss

 

Abstract

Today’s essay will discuss one of today’s top five fortune five hundred corporation’s; ConocoPhillips.  Main industry of oil and gas; this paper will also cover who some of the main players of the corporation are and what they do, plus a discussion on at least one of the firms accounting policies and if there is any possibility for a better alternative or not.  I will conclude with what I think is or is not being properly used.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ConocoPhillips

Industry of oil and gas exploration and production; rating number four in the top Fortune 500 corporations, May of 2012,(cnnmoney, 2012).  CEO and chairman as of May, 2012 is Ryan M. Lance.   Mr. Lance is a petroleum engineer with twenty-eight years of experience in the industry; serving as senior management and technical positions with ConocoPhillips.  Holding the position of Ceo is considered very significant in the corporate world today; there is a vast amount of monetary profit; status, and power that one needs to be responsible for.  By the chosen CEO using his or her known leadership skills plus successful resolution skills; to round it up a CEO’s responsibilities are set by the board of directors or another authority depending on its legal structure.  A CEO is the main decision maker, communicator, manager and leader.  This spot a CEO involves anywhere from press to the world outside as well as its own employees and management.  A CEO’s decision making can involve very intense choices about strategy and policies.  As a leader, the CEO will motivate employees, make changes within the firm and advise his board of directors. (ConocoPhillips, 2012)

Jeff W. Sheets,(CFO, SVP, Finance); also an engineer has thirty-two years of financial and technical leadership experience in the oil and gas industry and is the CFO of ConocoPhillips; (ConocoPhillips, 2012).

A CFO’s duties can be broken down into three categories…

1. Treasury Duties, in which, he or she is responsible for the corporate monetary condition (present time).  He or she must choose how and when to invest the firm’s money also deliberate on the risk and liquidity factors.  CFOs as well oversee the capital structure of the firm and decide which mix of equity and debt in internal financing is best.  Capital structure is one of the most vital positions in being a CFO. (Investopedia, 2012)

2. Controllership; this is where the CFO is held responsible for reporting and presenting historical financial information accurately and in a timely manner.  Analysts, shareholders, creditors and employees along with many other members of management depend on the accuracy and timeline of this given information; so it is very important that the CFO is correct and accurate because decisions are based on this report. (Investopedia, 2012)

3. Forecasting and Economic Strategy; a CFO must be able to notice what specific areas a firm is more efficient in and how to capitalize on this.  Furthermore, a CFO must try to predict (give scenarios) of ensuring the firms future.  A CFO’s job is a difficult one, and a practiced CFO will definitely differ from a not so proficient CFO by his or her projection of long-term financial picture and how the firm thrives is the only way to tell. (Investopedia, 2012)

External accountant for ConocoPhillips, Ernst and Young, LLP; what are the duties of an external auditor?  Existing inspection principles involve that independent auditor’s present rational guarantee that the monetary records accurate and free of misstatements in order to give an unqualified opinion on the monetary statements, whether caused by error or fraud.  External auditors cannot give one an absolute guarantee in regard to financial statements, and they should not be expected too; but public expectations seem to be high.  External auditors are concerned with material misstatements where as a firm that may be using them expects them to find illegal acts that hurt their monetary statements. (ConocoPhillips, 2012)

Note 1– Revenue Recognition

“Profits linked with the sales of natural gas, crude oil, bitumen, natural gas liquids, chemical products, liquefied gas and petroleum along with other elements are acknowledged when label changes to the client in which the threat of proprietorship passes to the buyer and tangible transfer of property or goods happen; whichever is reasonable on a pre-set date to be delivered or immediately.  Incomes connected with generating locations which we have a vast interest in with other manufacturers are also identified centered on the tangible amount we sold during the period.  Any disputes between amounts sold and entitlement amounts created on our net working interest and are deemed to be non-recoverable through the remaining of manufacturing and are seen as accounts receivable and accounts payable as applicable; increasing variance between amounts sold and entitlement amounts are usually not important.  Profits connected with transactions buy/sell deals in which the obtaining and sale of stock with the same colleague are entered into “in contemplation” of each other, combined and logged net income; (Hoovers Inc., 2012).”

Why is Revenue Recognition Important?

Because according to the accrual basis of accounting you only record revenue when an individual (or firm) has extensively finished a profits origination procedure, then one can log income once it has been received.  An example would be a mowing business that charges a standard fee of $20 dollars per yard each mowed.  Revenue can recognized upon completion of that yard; even so, your client cannot pay you until the end of next week.  Furthermore, under the accrual basis of accounting if an individual (or firm) has received a payment in advanced from a client, then the firm should record this expense as a liability; only after all work is finished and under client arrangements then the payment can be recognized as revenue; with cash basis accounting record revenue when given a cash payment.  Using the example of the mowing business, the mowing business will not acknowledge the income until it has received payment from its client. (Goodwin, 2010)

 

 

Is there an Alternative to Revenue Recognition?

Revenue Recognition Period of Sale—used since understanding has taken place and revenues have been received at the time of the transaction; accrual inventory is used outgoings are matched alongside incomes as stock is logged in at cost, accounts receivable are listed at net attainable worth; this technique is primarily used. (Iticale, 2012)

Revenue Recognition Prior to Period of Sale—to consider the financial matter over lawful method; percentage completion method of accounting for long-term contracts and proportional performance method of accounting for long-term service contracts are an example. (Iticale, 2012)

Revenue Recognition Completion of Production—used for specific farm products and precious metals that may have a set market value and unit substitution; this, however, is rarely used. (Iticale, 2012)

Revenue Recognition after the Period of the Sale—is used when the collection of a firm’s receivables is not guaranteed or cannot be estimated.  The cost recovery methods along with the installment method are both used to defer revenue recognition. (Iticale, 2012)

ConocoPhillips Policy

According to ConocoPhillips, (2012); ConocoPhillips is mandated to gather their monetary records in correspondence with (GAAP) or the generally accepted accounting principles.  The firm exercises inventory suppleness to convey the firm’s financial state and present its monetary position; ConocoPhillips does not log investigative drilling locations they possess as material goods until that location has been proven lucrative.  Prior to the discovery of verified assets, is expense suffered; which can be contrasted to the study and improvement cost of other firms.  It acknowledges the expense in discovery and takes advantage of its expenditure that has made the main innovation of proven oil resources.  It calculates the possessions in utility sets to correctly price property and log damage, which gives a strong image of the firms factual worth; the firm has obtained new businesses and has identified imperceptible belongings and goodwill; in turn has spread the firm’s resources and remaining profits.  ConocoPhillips present their management with a powerful motivation proposal that is sure to help advance the corporates monetary accomplishment.

In Conclusion

I fully believe in what I have read and researched that ConocoPhillips is properly using the accounting policies and internal tools best to their ability.  There has not been any seen miss-conduct or fraud; or any kind of miss-happenings what so ever.  The Alternative to Revenue Recognition (off the record) has me a little bewildered simply because I it is stated there is no other alternative that is accepted but cash basis, but is not GAAP accepted, so I guess I am a little lost on how these Recognition Alternative’s stated above would be put in play but thought they were important enough to mention.

 

At least Two Years of Financial Statements

Consolidated Income Statement   

 

ConocoPhillips

  
   
Years Ended December 31

Millions of Dollars

 
 

2011

   

2010

   

2009

 
 

 

 

 
       
Revenues and Other Income                      
Sales and other operating revenues* $

244,813

      

189,441

   

149,341

Equity in earnings of affiliates  

4,077

      

3,133

   

2,531

Gain on dispositions  

2,007

      

5,803

   

160

Other income  

329

      

278

   

358

 

 
Total Revenues and Other Income  

251,226

   

198,655

   

152,390

 

 
       
Costs and Expenses                      
Purchased crude oil, natural gas and products  

185,867

      

135,751

   

102,433

Production and operating expenses  

10,770

      

10,635

   

10,339

Selling, general and administrative expenses  

2,078

      

2,005

   

1,830

Exploration expenses  

1,066

      

1,155

   

1,182

Depreciation, depletion and amortization  

7,934

      

9,060

   

9,295

Impairments  

792

      

1,780

   

535

Taxes other than income taxes*  

18,307

      

16,793

   

15,529

Accretion on discounted liabilities  

455

      

447

   

422

Interest and debt expense  

972

      

1,187

   

1,289

Foreign currency transaction (gains) losses  

(16

   

92

   

(46

)

 

 
Total Costs and Expenses  

228,225

   

178,905

   

142,808

 

 
Income before income taxes  

23,001

   

19,750

   

9,582

Provision for income taxes  

10,499

   

8,333

   

5,090

 

 
Net income  

12,502

   

11,417

   

4,492

Less: net income attributable to noncontrolling interests  

(66

)    

(59

)    

(78

)

 

 
Net Income Attributable to ConocoPhillips $

12,436

   

11,358

   

4,414

 

 
       
Net Income Attributable to ConocoPhillips Per Share of Common Stock (dollars)                      
Basic $

9.04

   

7.68

   

2.96

Diluted  

8.97

   

7.62

   

2.94

 

 
       
Average Common Shares Outstanding (in thousands)                      
Basic  

1,375,035

   

1,479,330

   

1,487,650

Diluted  

1,387,100

   

1,491,067

   

1,497,608

 
     

 

     

     

 

Hoovers Inc. (2012)

 

 

 

 

 

Consolidated Statement of Cash Flows   

 

ConocoPhillips

  
   
Years Ended December 31

Millions of Dollars

 
 

2011

   

2010

   

2009

 
 

 

 

 
Cash Flows From Operating Activities                      
Net income $

        12,502

      

11,417

   

4,492

Adjustments to reconcile net income to net cash provided by operating activities                      
Depreciation, depletion and amortization  

7,934

      

9,060

   

9,295

Impairments  

792

      

1,780

   

535

Dry hole costs and leasehold impairments  

470

      

477

   

606

Accretion on discounted liabilities  

455

      

447

   

422

Deferred taxes  

1,287

      

(878

)    

(1,115

)
Undistributed equity earnings  

(1,077

   

(1,073

)    

(1,254

)
Gain on dispositions  

(2,007

   

(5,803

)    

(160

)
Other  

(359

   

(249

)    

196

Working capital adjustments                      
Decrease (increase) in accounts and notes receivable  

(1,169

   

(2,427

)    

(1,106

)
Decrease (increase) in inventories  

556

      

(363

)    

320

Decrease (increase) in prepaid expenses and other current assets  

(306

   

43

   

282

Increase (decrease) in accounts payable  

1,290

      

2,887

   

1,612

Increase (decrease) in taxes and other accruals  

(722

   

1,727

   

(1,646

)

 

 
Net Cash Provided by Operating Activities  

19,646

      

17,045

   

12,479

 

 
       
Cash Flows From Investing Activities                      
Capital expenditures and investments  

(13,266

   

(9,761

)    

(10,861

)
Proceeds from asset dispositions  

4,820

      

15,372

   

1,270

Net sales (purchases) of short-term investments  

400

      

(982

)    

-

Long-term advances/loans—related parties  

(9

   

(313

)    

(525

)
Collection of advances/loans—related parties  

648

      

115

   

93

Other  

392

      

234

   

88

 

 
Net Cash Provided by (Used in) Investing Activities  

(7,015

   

4,665

   

(9,935

)

 

 
       
Cash Flows From Financing Activities                      
Issuance of debt  

-

      

118

   

9,087

Repayment of debt  

(961

   

(5,320

)    

(7,858

)
Issuance of company common stock  

96

      

133

   

13

Repurchase of company common stock  

(11,123

   

(3,866

)    

-

Dividends paid on company common stock  

(3,632

   

(3,175

)    

(2,832

)
Other  

(685

   

(709

)    

(1,265

)

 

 
Net Cash Used in Financing Activities  

(16,305

   

(12,819

)    

(2,855

)

 

 
       
Effect of Exchange Rate Changes on Cash and Cash Equivalents  

-

      

21

   

98

 

 
       
Net Change in Cash and Cash Equivalents  

(3,674

   

8,912

   

(213

)
Cash and cash equivalents at beginning of year  

9,454

      

542

   

755

 

 
Cash and Cash Equivalents at End of Year $

5,780

      

9,454

   

542

 

 

Hoovers Inc., (2012)

References

Goodwin, A. (2010). Financial Statement Analysis. In Financial Accounting. Cengage. doi:9781111219543

N, A. (2012). Alternative Revenue Recognition Methods in Accounting [Alternative Revenue Recognition Methods in Accounting]. In Iticale Financial Services. Retrieved May 24, 2012, from Iticale website: http://www.iticale.com/accounting/Alternative-Revenue-Recognition-Methods.aspx

N, A. (2012). ConocoPhillips [ConocoPhillips]. In ConocoPhillips. Retrieved May 24, 2012, from ConocoPhillips website: http://www.conocophillips.com/EN/Pages/index.aspx

N, A. (2012). ConocoPhillips. ConocoPhillips Inc. Retrieved from Hoovers, Inc. (2012) database.

N, A. (2012). Investopedia [Chief Financial Officer]. In Investopedia. Retrieved May 24, 2012, from Investopedia website: http://www.investopedia.com/ask/answers/04/042204.asp#axzz1vpTMpl7

 

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