Exposure Draft on Contracts for Renewable Electricity (Proposed Amendments to IFRS 9 and IFRS 7)

The Exposure Draft on Contracts for Renewable Electricity proposes amendments to IFRS 9 (Financial Instruments) and IFRS 7 (Financial Instruments: Disclosures), as well as consequential amendments to IFRS 19 (Subsidiaries without Public Accountability: Disclosures).

Amendments:

1. Amendments to IFRS 9:

• Own-use requirements: These amendments aim to specify factors that entities must consider when applying IFRS 9 to contracts for buying and taking delivery of renewable electricity.Specifically, this applies to contracts where the source of electricity production is nature-dependent (such as wind or solar power) and where the purchaser bears substantially all the volume risk.
• Hedge accounting requirements: The proposed changes allow entities to use contracts for renewable electricity with specified characteristics as hedging instruments. Key amendments include:
  • Permitting designation of a variable volume of forecast electricity transactions as the hedged item, subject to certain criteria.
  • Allowing measurement of the hedged item using the same volume assumptions as those used for the hedging instrument.

2. Amendments to IFRS 7:

• Disclosure requirements: New disclosure requirements are proposed to help financial statement users understand the impact of contracts for renewable electricity on an entity’s financial performance, as well as the amount, timing, and uncertainty of the entity’s future cash flows.

3. Consequential Amendments to IFRS 19:

• Amendments to IFRS 19 will ensure consistency in disclosure requirements across relevant standards, specifically for subsidiaries without public accountability.

Conclusion: 

The objective of these amendments is to enhance transparency and provide clearer guidance on accounting for contracts related to renewable electricity, reflecting the unique characteristics and risks associated with these contracts. By seeking public comments on the Exposure Draft, the IASB aims to gather feedback from stakeholders globally, including from India through the ASB of ICAI, to ensure comprehensive consideration before finalizing the amendments. This process also helps stakeholders prepare for the implementation of these changes in accordance with global standards and timelines under Ind-AS.

Tamanna Bansal, Audit Associate, SW