THE ROLE OF ACCOUNTANT IN THE PROJECT EVALUATION IN THE OIL SECTOR (A CASE STUDY OF SHELL PETROLEUM DEVELOPMENT COMPANY, PORTHARCOURT)

CHAPTER ONE

1.0     INTRODUCTION

1.1     BACKGROUND OF THE STUDY:

Project evaluation is of dual approachies vis-à-vis project and evaluation. Project has to do with investment decision which most of these decision have direct effect in future profitability of the organization either because they will result in an increase in revenue generation or they will bring about an increase in efficiency and cost effectiveness.

          In the other hand, evaluation has to do with the analysis of the investment to see whether it will be worth while to take decision on it to go ahead with project’s expenditure.

          According to Aguolu, P.S.O (1997:6), investment decision are the use of funds on long term asset. What is needs in investment should be known before financing decision are to be taken. “A peculiar aspect of these is that they involve future benefits which are in many cases difficult to predict”. The investment decision of a firm are commonly known as “capital budgeting or capital expenditure decision”.

          Aguolu, P.S.O, (1997:70) “states that capital budgeting decision is that financial decision which involves and outlays of funds in the present time with the expectation of future returns over a period of time”. He further sees project evaluation as one of the capital budgeting processes.

          On this note, the accountant plays the role of evaluating the suitability and adaptation of the project in relation to profit maximization.

Also in evaluation, the project is expected to be measured on incremental basis what determines. The acceptance of a project is it’s changes (positive in the firms revenue, cost and tax strems). In constrast, cash flow that would be changed by the investment should be degraded.

1.2     STATEMENT OF PROBLEM

As a technical and creative aspect of human endeavour, project evaluation requires knowledge, experience and all the skills needed by a manager to perform job effectively. The accountant’s competence in project evaluation during his choice of a project for the organization is very significant.

          In a free market economy, it is generally delivered that the investors pays for an investments or intrinsic value. The problem here is how can the accountant relate the future cash flow, the expected returns and the degrees of risks associated with the investment to the market economy.

          Another problem the accountant may be faced with is the calculation formula, he will effectively use the evaluation formula so as to rationalize between theory and practice. These constraints will help us to investigate