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Oil & gas – Implementing IFRS 15

Oil & gas – Implementing IFRS 15

We look at possible impacts of IFRS 15, actions that may be needed, and how KPMG can help.


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KPMG IFRS 15 for oil and gas publication image: workers standing next to oil and gas pipelines and equipment

If you haven’t already made a start, it’s time to engage.

The new revenue standard – effective from 1 January 2018 – is having an impact  across the oil and gas sector. 

We look at how IFRS 15 Revenue from Contracts with Customers will affect companies in the oil and gas sector, and how KPMG can help.

How you might be affected

Some revenue may be recognised earlier than today, whilst some costs may be deferred. And the new disclosure requirements are extensive. 

However, the impacts will be felt far beyond accounting change. A number of sector-specific arrangements will be affected, including:

  • production- and sales-based royalties; and
  • oil and gas lifting imbalances. 

Production- and sales-based royalties

Arrangements that involve sales of assets may include variable consideration that is based on the subsequent performance of the asset. These are referred to as royalties.

Currently, some oil and gas companies recognise variable revenue from such arrangements as production or sales occur.

However, under the new standard you will estimate variable consideration – and include it in the transaction price – to the extent that it is highly probable that there will be no significant reversal in the amount of cumulative revenue recognised when the uncertainty is resolved.

This new approach may accelerate the recognition of revenue that depends on future production or sales levels.You may need to review the terms of such arrangements to understand the implications of the new standard.

You may also need to develop processes, or adjust systems and internal controls, for these types of contract.

Oil and gas lifting imbalances

Currently, payments to settle lifting imbalances are accounted for in a number of ways – including the sales method and the entitlements method.

Under the new standard, however, only consideration from contracts with customers is considered as revenue.

You will therefore need to consider whether all amounts currently reported as revenue could be reported as such under the new revenue standard.

Interaction with other new standards

It may not be straightforward to develop an implementation plan that addresses IFRS 15 as well as the requirements of IFRS 9 Financial Instruments and IFRS 16 Leases.

You will find it beneficial to develop an overall strategy for transition that incorporates all accounting changes expected in the near future and capitalises on any available synergies.

How we can help

Read Accounting for revenue is changing: Impact on oil and gas companies to further understand how these and other oil and gas sector-specific arrangements are affected, and the actions you may need to take.

It gives examples of how our cross-functional team of experts has helped clients across various sectors – including energy and natural resources – with the accounting and operational challenges of the new revenue standard.

These include:

  • performing an overall impact assessment to identify the key revenue streams that may be impacted by IFRS 15;
  • performing a detailed accounting diagnostic to identify and prioritise the impacts on accounting policies and disclosures, including information gaps; and
  • reviewing key accounting policies and accounting manuals.

Please speak to your usual KPMG contact if you would like to find out more about how KPMG can help your business.

For KPMG’s most recent publications on the new standard, visit our IFRS – Revenue hot topics page.

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