What is Discovery Value Accounting?

Discovery value accounting is used in the accounting for natural resources to place a valuation on the amount of extractable assets. Changes in these valuations flow through to the balance sheet, altering the amount of reserves. Valuation changes also impact earnings. The recognized amount of these valuations is based on the current values of the underlying assets.

Changes in the value of natural resources are described in detail in a schedule that accompanies a reporting entity’s financial statements.

Problems with Discovery Value Accounting

A key concern with discovery value accounting is that it can be difficult to generate a reasonable estimate of the amount of natural resources that can actually be extracted. This estimate can change over time, as more information is uncovered about the natural resources in question, and because extraction technologies may change.