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 oil and gas parties that become imbalanced. 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 and is a factor in management contracts, loan documents, award-based compensation agreements, buy-sell provisions and more. With so much riding on revenue, it is exceedingly important to get it right. So, knowing that your company is recognizing revenue correctly is both legally prudent and mission critical in an industry that is still strongly based on personal relationships.
The energy industry is inherently more complex and nuanced than most other sectors and is faced with ever changing rules. From federal regulatory requirements, individual state tax codes, national accounting standards and independent financial reporting metrics. Staying in compliance can be a challenge and correctly training employees, adopting and implementing new policies and procedures can be hard.
Are the new standards more complex than the previous methodology, yes. Are they more accurate in regards to capturing revenues in the appropriate period, also yes.
As a leader in the outsourced oil and gas accounting solutions domain, the professionals at The Resource Group are continuously engaged in the tracking and following the updated requirements for operations and expertly equipped to adopt to the changing landscape of reporting. We can you walk you through the technical steps of recognizing the appropriate level of revenue in the correct reporting period per ASC 606 and make sure that your organization is set up in the most efficient and functional manner.
If you are struggling with gas balancing or you’re just not sure if your team is following the current protocols, give us a call for a free consultation.