Exxon 2009 Annual Report Download - page 40

SUMMARY OF ACCOUNTING POLICIES AND PRACTICES
The Corporation’s accounting and financial reporting fairly reflect its straightforward business model involving the extracting,
refining, and marketing of hydrocarbons and hydrocarbon-based products. The preparation of financial statements in conformity
with U.S. Generally Accepted Accounting Principles (GAAP) requires management to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues, expenses, and the disclosure of contingent assets and liabilities. Actual
results could differ from these estimates.
The summary financial statements include the accounts of those subsidiaries owned directly or indirectly with more than
50 percent of the voting rights held by the Corporation, and for which other shareholders do not possess the right to participate
in significant management decisions. They also include the Corporation’s share of the undivided interest in certain Upstream
assets and liabilities. Amounts representing the Corporation’s percentage interest in the net assets and net income of the
less-than-majority-owned companies are included in “Investments, advances, and long-term receivables” on the Balance Sheet
and “Income from equity affiliates” on the Income Statement.
The “functional currency” for translating the accounts of the majority of Downstream and Chemical operations outside the
United States is the local currency. The local currency is also used for Upstream operations that are relatively self-contained
and integrated within a particular country. The U.S. dollar is used for operations in countries with a history of high inflation and
certain other countries.
Revenues associated with sales of crude oil, natural gas, petroleum and chemical products are recognized when the products
are delivered and title passes to the customer.
Inventories of crude oil, products, and merchandise are carried at the lower of current market value or cost (generally
determined under the last-in, first-out method – LIFO). Inventories of materials and supplies are valued at cost or less.
The Corporation makes limited use of derivative instruments. When derivatives are used, they are recorded at fair value, and
gains and losses arising from changes in their fair value are recognized in income.
The Corporation’s exploration and production activities are accounted for under the “successful efforts” method. Depreciation,
depletion, and amortization are primarily determined under either the unit-of-production method or the straight-line method.
Unit-of-production rates are based on the amount of proved developed reserves of oil, gas, and other minerals that are
estimated to be recoverable from existing facilities. The straight-line method is based on estimated asset service life.
The Corporation incurs retirement obligations for certain assets at the time they are installed. The fair values of these obligations
are recorded as liabilities on a discounted basis and are accreted over time for the change in their present value. The costs
associated with these liabilities are capitalized as part of the related assets and depreciated. Liabilities for environmental costs
are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated.
The Corporation recognizes the underfunded or overfunded status of defined benefit pension and other postretirement plans
as a liability or asset in the balance sheet with the offset in equity, net of deferred taxes.
A variety of claims have been made against ExxonMobil and certain of its consolidated subsidiaries in a number of pending
lawsuits and tax disputes. For further information on litigation and tax contingencies, see Notes 15 and 18 to the Consolidated
Financial Statements in Appendix A of ExxonMobil’s 2010 Proxy Statement.
The Corporation awards share-based compensation to employees in the form of restricted stock and restricted stock units.
Compensation expense is measured by the market price of the restricted shares at the date of grant and is recognized in the
income statement over the requisite service period of each award.
Further information on the Corporation’s accounting policies and practices can be found in Appendix A of ExxonMobil’s 2010
Proxy Statement (Critical Accounting Policies and Note 1 to the Consolidated Financial Statements).
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