Northstar Resources capitalizes all costs incurred in connection with searching for new oil and gas wells, even when the exploration does not result in a well that has oil in it. They maintain that they must incur those costs in order to find a producing well. In many countries where Northstar Resources explores and operates, there are no legal requirements to restore the land to its original state once the exploration is complete or a well is depleted. The company does, however, state that it considers this an important activity and will make every effort to restore the site.

Discuss any financial reporting issues in this example (if any exist) and provide any recommendations on how to handle this situation. What accounting policies are applicable?