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.

Investopedia explains '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.


Filed Under: ,

comments powered by Disqus
Hot Definitions
  1. Federal Reserve Note

    The most accurate term used to describe the paper currency (dollar bills) circulated in the United States. These Federal Reserve Notes are printed by the U.S. Treasury at the instruction of the Federal Reserve member banks, who also act as the clearinghouse for local banks that need to increase or reduce their supply of cash on hand.
  2. Benchmark Bond

    A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark issue" or "bellwether issue".
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  4. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  5. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  6. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
Trading Center