Discovery Value Accounting

DEFINITION of 'Discovery Value Accounting'

A method of accounting often used in the oil and gas, mining and other explorative industries. Discovery value accounting is used to account for any increases in reserves (oil, gas, etc.) which would lead to an increase in assets and potentially earnings on a company's financial statements. This accounting method allows for companies in these industries to more easily adjust financial statements to account for such changes in thier extractable assets.

BREAKING DOWN 'Discovery Value Accounting'

A primary issue with discovery value accounting is in valuing newly discovered reserves, since discount rates for commodities are difficult to estimate, along with the uncertainty of exactly how much of the new reserves can actually be extracted and ultimately produced. Also, when adjustments are made to a company's financial statements under discover value accounting methods, supplemental financial statements will be required to illustrate any changes to assets, earnings, discount rates and all other changes that are required.

Discovery value accounting is also often referred to as reserve recognition accounting.