IASB Targeted amendments to nature-dependent electricity contracts (IFRS 9 + IFRS 7)

IASB Targeted amendments to nature-dependent electricity contracts (IFRS 9 + IFRS 7)

• 14 January 2025
• Financial Reporting
• South African Accounting Academy

Summary:

The International Accounting Standards Board (IASB) has issued targeted amendments to help companies better report the financial effects of nature-dependent electricity contracts, which are often structured as power purchase agreements (PPAs). The IASB acted swiftly in the light of the increased use of these contracts.

Article:

Nature-dependent electricity contracts help companies to secure their electricity supply from sources such as wind and solar power. The amount of electricity generated under these contracts can vary based on uncontrollable factors such as weather conditions. Current accounting requirements may not adequately capture how these contracts affect a company’s performance.

To allow companies to better reflect these contracts in the financial statements, the IASB has made targeted amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures. The amendments include:

• clarifying the application of the ‘own-use’ requirements;
• permitting hedge accounting if these contracts are used as hedging instruments; and
• adding new disclosure requirements to enable investors to understand the effect of these contracts on a company’s financial performance and cash flows.

Remember what IFRS 9 and IFRS 7 are all about:

• IFRS 9 specifies how an entity should classify and measure financial assets, financial liabilities, and some contracts to buy or sell non-financial items.
• IFRS 7 requires entities to provide disclosures in their financial statements that enable users to evaluate certain aspects pertaining to financial instruments

Contents:

• Amendments to IFRS 9 Financial Instruments
• Amendments to IFRS 7 Financial Instruments: Disclosures
• Appendix—Amendments to Other IFRS Accounting Standards
• Approval by the IASB of Contracts Referencing Nature-dependent Electricity issued in December 2024
• Amendments to the Illustrative Examples on IFRS 9 Financial Instruments
• Amendments to the Basis for Conclusions on IFRS 9 Financial Instruments
• Amendments to the Basis for Conclusions on IFRS 7 Financial Instruments: Disclosures
• Amendments to the Bases for Conclusions on Other IFRS Accounting Standards

IFRS Digital subscribers will be able to download the document from the IFRS Accounting Standards Navigator and the Power Purchase Agreements project page.

Click here to download the 40-page Amendments document:

https://www.ifrs.org/content/dam/ifrs/publications/amendments/english/2024/iasb-2024-3-crne-ifrs7-ifrs9.pdf

Relevance to Auditors, Independent Reviewers & Accountants:

• As an auditor and independent reviewer, you need to consider your clients’ compliance with accounting standards.
• As an accountant and compiler of financial statements, you need to consider amendments to standards that are issued by the standard-setting bodies, e.g. IASB, IAASB, etc.

Relevance to Your Clients:

• An entity compiling filing financials need to consider amendments to standards that are issued by the standard-setting bodies, e.g. IASB, IAASB, etc.

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