Although the new revenue standard IFRS 15, set to come into force from January 1, 2018, will have a limited impact on the shipping industry, “it can’t be entirely ignored,” shipping consultant Moore Stephens said.
The new accounting standard, Revenue from Contracts with Customers, excludes revenues under leasing contracts, so income from bareboat charters and the asset element of time charters will be unaffected. Rather, the effect will be on the service element of time charters and on voyage charters.
The key change is one of approach. Current practice looks at revenue recognition by reference to what is being done by the seller, while the new standard looks at what is being received by the buyer.
Moore Stephens informed that there are various bases currently used for voyage accounting, most commonly discharge-to-discharge.
“That makes sense when looked at in terms of what the shipping company is doing, but not if we look at what the charterer is receiving. Voyage accounting is expected to move to a load-to-discharge basis, since that reflects the period over which the charterer is obtaining benefit.”
That leaves the question of the accounting treatment of relocation costs, such as a ballast leg. Such costs can be carried forward prior to load if they relate directly to a contract; generate or enhance resources to be used in meeting obligations under the contract; and if they are expected to be recovered.
“Where costs are carried forward, they will be written off over the period of the next voyage. The criteria will often be met, although care will need to be taken to ensure that general and administrative overheads are not included. The final criterion also means costs cannot be carried forward where the charter is expected to result in a loss,” Moore Stephens said.
So compared to current practice, revenue will start to be recognised a little later, and for fewer days each year. On those days when revenue is recognised, the amounts will, of course, be higher. The change in total revenue, and profit, will arise only in relation to those voyages, or periods of relocation, which straddle the end of a year. This will also effect key performance measures, such as Time Charter Equivalents (TCE).