The Independent: Shell auditors told of problems with overstated reserves two years ago

The Independent: Shell auditors told of problems with overstated reserves two years ago

“Anton Barendregt, is said to have highlighted systemic problems with the company’s reserves reporting procedures”

By Michael Harrison, Business Editor

16 July 2004

The spotlight in the Shell reserves scandal fell on the oil giant’s external auditors yesterday after reports that company insiders had alerted them to the possible need for downgrades two years ago.

According to documents quoted by the Wall Street Journal, KPMG and PriceWaterhouseCoopers – Shell’s joint auditors – were warned in 2002 by the company’s internal auditor about potential problems with its reserves bookings.

Shell’s internal reserves auditor, Anton Barendregt, is said to have highlighted systemic problems with the company’s reserves reporting procedures.

However, Mr Barendregt is also said to have concluded that only about 1 per cent of Shell’s reserves for 2002 were at risk of being overstated. It is also unclear whether the internal warnings were significant enough to merit investigation.

Shell was forced to cut its proven reserves by 4.5 billion barrels or 24 per cent, Since January it has downgraded its reserves four times and is being investigated by the US Justice Department and Securities and Exchange Commission and the Financial Services Authority.

Mr Barendregt is also said to have alerted auditors to the suggestion Shell’s executive bonus scheme may have encouraged the overbooking of reserves.

KPMG said its stood by its auditing work for Shell. Both it and PwC referred all questions about their auditing of the company to Shell. A Shell spokesman said that it could not verify whether the documents referred to were official and said it could not comment on leaked or unverified documents.

The reserves scandal led to the ousting of Shell’s chairman, Sir Philip Watts, and its head of exploration and production, Walter van de Vijver, in March and the departure a month later of its finance director Judy Boynton.

Shell has previously disputed claims that its bonus scheme encouraged executives to overbook reserves, saying this measure of operational performance only accounted for 6 per cent of annual bonus payments.

Shell has since overhauled its reserves booking policy and is also undertaking a major review of its corporate structure. The company is considering whether to abandon its much criticised dual board arrangements although it insists its corporate structure played no part in the original reserves misreporting.

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