Shipping accounting: the key IFRS issues

Why is shipping accounting different?

A ship owner's balance sheet is dominated by vessels, financed with secured loans, leases and sale and leaseback arrangements, so depreciation, residual values and impairment drive results. The same vessel can earn revenue in different ways, from a single voyage priced per tonne of cargo to a multi-year charter at a fixed daily rate, and each has its own accounting under IFRS 15 or IFRS 16. Freight, charter hire, vessel prices and most costs are in US dollars, which shapes the functional currency. And many owners pay tonnage tax, based on the size of the fleet rather than profits.

Which IFRS issues matter most in shipping accounting?

How are vessels depreciated?

Under IAS 16, a vessel is split into components: the hull and machinery, depreciated over the expected life, often 25 years for bulk carriers and tankers, to a residual value based on the scrap value of its steel; the dry-docking component, depreciated until the next dry-dock; and equipment such as scrubbers and ballast water treatment systems, depreciated over their own lives. Residual values follow scrap steel prices, so they are reviewed every year. See vessel components and depreciation.

How are dry-docking costs treated?

Classification societies require vessels to be dry-docked for inspection, usually twice every five years, with an in-water survey possible for younger ships. The cost of the survey and related work is capitalised as a component and depreciated until the next dry-dock; repairs carried out at the same time are expensed. No provision is made in advance. See dry-docking costs.

How is voyage charter revenue recognised?

Under a voyage charter, the owner carries a cargo between ports for a freight and pays the voyage costs. The voyage is a single performance obligation satisfied over time, and most owners recognise revenue from the start of loading to the end of discharge, with the costs of sailing to the load port after the charter is fixed capitalised as costs to fulfil the contract. See voyage revenue recognition. Delays in port beyond the agreed time earn demurrage, which is variable consideration; see demurrage and despatch.

Are time charters leases?

A time charter gives the charterer the use of an identified vessel for a period, deciding where it trades, while the owner crews and runs it. That usually contains a lease under IFRS 16: the owner is a lessor, normally of an operating lease, and recognises the crewing and technical management as a service under IFRS 15. A bareboat charter, with no crew, is a lease only. Charterers recognise right-of-use assets for time charters longer than twelve months. See time charters: lease or service and lessor accounting.

Why is impairment so important in shipping?

Vessel values move with freight rates, so a market fall often makes the fair value of a fleet drop below its carrying amount, an impairment indicator. Owners usually treat each vessel as a cash-generating unit, unless it trades in a pool or under a contract with others, and compare carrying amount with value in use based on charter rates over the remaining life. The judgement over long-term rates makes this one of the most scrutinised areas of shipping accounts. See IAS 36 impairment.

What else shapes shipping accounts?

Most shipping companies, wherever they are based, have the US dollar as their functional currency under IAS 21, because freight, hire, vessel prices and financing are in dollars. Tonnage tax is based on the net tonnage of the fleet rather than taxable profit, so it is generally outside IAS 12 and creates no deferred tax. Since 2024, the EU Emissions Trading System has covered emissions from large ships calling at EU ports, creating obligations to surrender allowances; see emissions allowances. More detail is in the guides on vessel impairment, bunker fuel, shipping pools, vessel sale and leaseback and functional currency in shipping.

This guide is general information. It is not tax or legal advice for your situation.