Energy Insights – Oil & Gas Revenue Recognition

Oil and gas executives may have heard that the new revenue recognition standard (ASC 606) will not require a substantial change in how they recognize revenue. While this is true, ASC 606 will fundamentally change how oil and gas companies think about, track, record and report revenue. Under previous revenue recognition guidance for oil and gas companies, production drove revenue. Under the new comprehensive model to be applied to all industries, performance obligations and the fulfillment of those obligations determine when revenue is recognized.

ASC 606 also requires substantially different and more extensive qualitative and quantitative disclosures. Energy companies will need to modify or add systems to track and evaluate different types of information than they have historically tracked. As a result, implementation of the standard will be more time-consuming, complex and costly than many expect.

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