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IFRS 16 Leases: upstream oil and gas

IFRS 16 Leases: upstream oil and gas

IFRS 16 Leases was issued in January 2016 and will take effect in January 2019. The standard introduces a new on-balance sheet model for lessee accounting which will impact upstream oil and gas firms.

Nick Chandler


KPMG in the UK


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IFRS 16 Leases: upstream oil and gas - evening crane work

The new standard requires lessees to recognise assets and obligations arising from most leases on their balance sheet. Lessor accounting will remain similar to current practice – for example, lessors can continue to classify leases as finance and operating leases.

The International Accounting Standards Board introduced the IFRS 16 Leases standard in 2016, with an effective date of 1 January 2019.

Some of questions our report addresses include: 

How will accounting change?
To the extent that operating leases are brought on-balance sheet, companies will recognise a lease liability representing the obligation to make lease payments over the term of the lease and a corresponding right-of-use asset ,that will be depreciated over the term of the lease.

Does the contract contain a lease?
Given contracts that are determined to be leases will now be on-balance sheet for lessees, one of the most important early considerations will be around the scope of the standard. Companies will need to understand whether contracts are, or contain, a lease.

Read the full report: IFRS 12 - Leases. Impact of new lease standard on
upstream oil and gas companies

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