Lease accounting for the energy industry will change under the new standards. Energy companies lease a diverse range of assets across exploration and production, storage and distribution, and corporate and administrative functions.
The new leasing standards will require energy companies to update their accounting policies based on the new principles. In some cases, extensive analysis may be required to arrive at judgments on how to apply the standards to certain lease types.
Key Considerations
1. Which types of leases are in and out of scope for the new standard? Understand not only traditional property, plant, and equipment, but also natural gas and drilling rights.
2. Which types of arrangements might qualify as embedded leases under the new standards? Consider complex arrangements with oilfield services companies as well as shared storage tanks and pipeline capacity.
3. How are lease components such as sub-leases, non-billable days, billing based on usage or volume, and escalating and mile-marker payments tracked and reported for transportation and storage assets under the new accounting standards?
What the Experts Think
Links to Additional Resources
Oil and Gas
Applying IFRS: IASB issues a new leases standard — Oil and Gas
EY explains the changes ahead for oil and gas industries with the new lease accounting standard, such as their commercial leasing decisions, joint arrangements, and more.
Impact of new lease standard on upstream oil and gas companies
KPMG delves into the impacts of the new lease accounting standards on oil and gas companies, including factors such as substitution rights, identified assets, and lease definition. The publication also provides information on next steps for the industry.
Leases - joint arrangements in the oil and gas industry
KPMG reviews how the new IFRS 16 lease accounting guidance changes the way the oil and gas industry will identify the customer in contracts involving joint arrangements.
How the FASB's new leases standard will affect oil and gas entities
In their "Technical Line" series, EY details how FASB's new lease accounting standards will affect the oil and gas industry, providing examples on how these changes could develop and the actions this industry should take with implementation.
In depth: Energy industry supplement to leasing standard
PwC highlights the impacts of ASC 842 on oil and gas industries, from the lease and nonlease components to the different types of contracts within the oil and gas industry.
Deloitte Renewable Energy: Accounting for ASC 842 leases
Deloitte offered insights for implementing ASC 842 at their renewable energy seminar. The summary discusses potential challenges and recommendations for the renewable energy sector.
Power and Utilities
Power & Utilities Spotlight — Powering up the new leases standard
Deloitte spotlights the power and utilities industry in this publication and the changes ahead due to the new lease accounting standards. The implications of ASC 842 on these entities include the effects on power purchase agreements, contracts, and more.
How the FASB’s new leases standard will affect power and utilities entities
EY explains the changes in store for the power and utilities entities with FASB's new lease accounting standards underway as well as the critical next steps that should be taken, from aggregating data on all leases to remaining up-to-date on lease accounting news.
