Corporate Effect: Revenue Recognition on Oil & Gas Entities

In the coming weeks this blog will explore annual reports (10K’s) across major industries to look at how companies approach new accounting changes. Consistent themes and patterns may emerge, but an underlying point will be to determine if companies meet the requirements of SAB 74: to disclose the effect of the change in accounting standards on their financial statements and operations. 

“The SEC staff indicated that it expects these disclosures to evolve over time as companies begin to better understand how the standard will impact their financial statements,” according to BDO’s Flash Report, SEC Matters.  If a company determines the change in accounting standard is immaterial, and at some future time a material effect is determined, or the change in the accounting standard is more significant than previously disclosed, the SEC will have to determine if the company has lived up to the spirit of SAB 74.

On that note, the new revenue recognition standard is set to buck industry specific guidance, bringing the recognition of revenue comparable across industries. Stakeholders in all industries are asking the question: How will this affect us? Let’s take a look at what a few Oil and Gas (O&G) companies are saying in their annual reports. 

The determination of immateriality by the companies is consistent with  Deloitte’s Oil and Gas Spotlight: Fueling discussion about the FASB’s new Revenue Recognition Standard where it is stated: “the new revenue model is not expected to result in significant changes in revenue recognition for many of the commodity sales transactions” however; in relation to the more extensive disclosures required under the new revenue recognition standard “oil and gas entities may need to modify their systems and processes to gather information about contracts with customers that is not otherwise readily available.”  

Users of O&G company financial statements will realize some changes in revenue due to the stripping out of certain sales based taxes such as an excise or value added tax. Users of financial statements may also see adjustments to retained earnings as noted by Diamond Offshore. In the coming reporting periods we may expect expanded disclosures as companies attempt to live up to the spirit of SAB 74.

For expanded information on O&G Accounting visit BNA’s relevant portfolios including Oil and Gas Accounting: Upstream Operations and see the new Revenue Recognition standard – Analysis and Application. (Subscription Required).

 

View the 10K by clicking the company below:

Exxon

Chevron

Diamond Offshore

Marathon Petroleum Corp

Phillips 66

 

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