This Shipping Spotlight discusses the new revenue and leases standards with a focus on implementation considerations for the shipping industry. Specifically, this publication addresses select aspects of the new revenue and leases standards that relate to certain common arrangements in the shipping industry, such as (1) voyage charters, (2) contracts of affreightment, (3) time charters, (4) bareboat charters, and (5) vessel pool arrangements.

As discussed in the attached publication, the scope of the new leases standard relies on whether there is an identified asset (i.e., property, plant, or equipment) and whether control of the identified asset transfers to the customer (i.e., from the lessor to the lessee) during the term of the contract. Accordingly, because a vessel is central to voyage, time, and bareboat charters, we discuss these arrangements by evaluating whether (1) the arrangement is or contains a lease in accordance with ASC 842 and (2) there are any nonlease components that should be accounted for in accordance with ASC 606. In other words, because the scope of the new revenue standard excludes performance obligations that are leases, an entity should first assess whether the contract is a lease in its entirety or contains a lease in accordance with ASC 842 and apply the revenue recognition requirements in ASC 606 to the remainder of the contract (i.e., the portion of the contract that is not a lease).

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