For our friends and colleagues in the oil and gas industry that think they will be escaping the hungry jaws of ASC 606 relatively unscathed, Embark has some good news and bad news. While it is certainly true that other industries, technology and construction in particular, are more within the crosshairs of the changes to revenue recognition, oil and gas must still be on the lookout for a few items to stay within the good graces of the accounting gods.

For upstream companies, operators in a joint operating agreement or production sharing contract need to consider whether they are acting as a principal or an agent for the sale of commodities. You also need to apply judgment when accounting for commodity sales contracts.

In the case of midstream companies in oil and gas, the new revenue recognition regulations dictate the importance to evaluate whether the various services they provide are separate performance obligations. Alternative revenue programs for rate-regulated entities, which generally aren't considered contracts with customers due to the involvement of regulators, are outside the scope of the new standard.

Lastly, for downstream companies where retail operations are involved, you will likely need to consider the effects of brand licensing and franchise arrangements to identify performance obligations included in the contracts with customers. Downstream companies will also need to apply judgment when accounting for commodity sales contracts.

Whether upstream, midstream or downstream, however, it's important to remember that applying the new standard requires changes to an entity's accounting policies, processes and internal controls. It may also require changes to information technology systems and platforms utilized when establishing and maintaining compliance. A certain degree of agility will be required during the implementation process and likely on an ongoing basis as well. Unless you're a Fortune 200, this is why it often makes more sense to bring in a boutique financial consulting firm to lead this ongoing process; especially since it’s likely to be a small engagement for a Big-4 firm (with a "Big-4 price tag" & "small engagement" consultants).

In the case of ASC 606, out with the old and in with the new includes more than just the new regulations but likely new internal procedures as well. Similarly, adherence to the new revenue recognition regulations is not relegated to a single department but should be achieved with an integrative approach, including the accounting, tax and IT departments as well as any others who might play even a peripheral role in adopting the new standards. If your firm is the type that prefers to make a dramatic, last-minute entrance to the accounting ball, Embark highly suggests adopting a new philosophy, setting your procrastinating ways aside and diving headfirst into the ASC 606 pool.

In other words, if you are not already at least knee-deep into the implementation process, find your metaphorical bathing suit and take the plunge because the clock is certainly ticking. As always, Embark relishes the opportunity to provide a bit of guidance here and there and invites you to download our e-book on ASC 606 with any further questions and concerns.