Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally
accepted in the United States requires Schlumberger to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of
revenue and expenses. The following accounting policies involve “critical accounting estimates” because they are
particularly dependent on estimates and assumptions made by Schlumberger about matters that are inherently
uncertain. A summary of all of Schlumberger’s significant accounting policies is included in Note 2 to the
Consolidated
Financial Statements
.
Schlumberger bases its estimates on historical experience and on various assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Multiclient Seismic Data
The WesternGeco business capitalizes the costs associated with obtaining multiclient seismic data. The carrying
value of the multiclient seismic data library at December 31, 2011 and 2010 was $425 million and $394 million,
respectively. Such costs are charged to
Cost of revenue
based on the percentage of the total costs to the estimated total
revenue that Schlumberger expects to receive from the sales of such data. However, under no circumstances will an
individual survey carry a net book value greater than a 4-year, straight-line amortized value.
The carrying value of surveys is reviewed for impairment annually as well as when an event or change in
circumstance indicates an impairment may have occurred. Adjustments to the carrying value are recorded when it is
determined that estimated future revenues, which involve significant judgment on the part of Schlumberger, would not
be sufficient to recover the carrying value of the surveys. Significant adverse changes in Schlumberger’s estimated
future cash flows could result in impairment charges in a future period. For purposes of performing the annual
impairment test of the multiclient library, future cash flows are analyzed primarily based on two pools of surveys:
United States and non-United States. The United States and non-United States pools were determined to be the most
appropriate level at which to perform the impairment review based upon a number of factors including (i) various
macroeconomic factors that influence the ability to successfully market surveys and (ii) the focus of the sales force and
related costs. Certain larger surveys, which are typically prefunded by customers, are analyzed for impairment on a
survey by survey basis.
Allowance for Doubtful Accounts
Schlumberger maintains an allowance for doubtful accounts in order to record accounts receivable at their net
realizable value. Judgment is involved in recording and making adjustments to this reserve. Allowances have been
recorded for receivables believed to be uncollectible, including amounts for the resolution of potential credit and other
collection issues such as disputed invoices. Depending on how such potential issues are resolved, or if the financial
condition of Schlumberger customers were to deteriorate resulting in an impairment of their ability to make payments,
adjustments to the allowance may be required.
Goodwill, Intangible Assets and Long-Lived Assets
Schlumberger records the excess of purchase price over the fair value of the tangible and identifiable intangible
assets acquired as goodwill. The goodwill relating to each of Schlumberger’s reporting units is tested for impairment
annually as well as when an event, or change in circumstances, indicates an impairment may have occurred.
Under generally accepted accounting principles, Schlumberger has the option to first assess qualitative factors to
determine whether the existence of events or circumstances leads to a determination that it is more likely than not
that the fair value of one of its reporting units is greater than its carrying amount. If, after assessing the totality of
events or circumstances, Schlumberger determines it is more likely than not that the fair value of a reporting unit is
greater than its carrying amount, then there is no need to perform any further testing. However, if Schlumberger
concludes otherwise, then it is required to perform the first step of a two-step impairment test by calculating the fair
value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the fair value
of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair
value of the goodwill of the reporting unit is less than its carrying value.
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