A major accounting process change that has been on the horizon for years is recognizing revenue. The adoption of Accounting Standards Codification, ASC 606, was enacted in 2014 with a deadline of December 21, 2019 for nonpublic entities to come into compliance. Also known as IFRS 15, it is a revenue recognition model designed to increase financial statement comparability among companies. These standards include a particular distinction that applies to imbalanced oil and gas parties, but this level of detail is probably not where you want to spend your time in management meetings.
Revenue, however, is the starting point for ultimate profitability— it’s a factor in management contracts, loan documents, award-based compensation agreements, and buy-sell provisions. With so much riding on revenue, knowing that your company is recognizing it correctly is both legally prudent and mission-critical, especially in an industry that is still strongly based on personal relationships.
The energy industry is inherently more complex and nuanced than most other sectors, faced with ever-changing rules: federal regulatory requirements, individual state tax codes, national accounting standards, and independent financial reporting metrics, amongst others. Today, staying in compliance, correctly training employees, and implementing new policies and procedures can be a challenge. These new standards are certainly more complex than previous methodologies, but they’re more accurate in regards to capturing revenues in the appropriate period.
How can we help?
As leaders in the outsourced oil and gas accounting solutions domain, the professionals at PetroLedger Financial Services are continuously engaged in following the updated requirements for operations and adopting to the changing landscape of reporting. We can walk you through the technical steps of recognizing the appropriate level of revenue in the correct reporting period per ASC 606, and we’ll ensure that your organization is set up in the most efficient and functional manner.
If you’re struggling with gas balancing or you’re not sure if your team is following the current protocols, contact us today for a free consultation.