The International Accounting Standards Board (IASB) has today announced targeted amendments aimed at improving how companies report the financial effects of nature-dependent electricity contracts, particularly power purchase agreements (PPAs). The IASB has moved swiftly in response to the increasing use of these contracts, which allow companies to secure electricity from renewable sources such as wind and solar power.
Nature-dependent electricity contracts are often subject to variable factors like weather conditions, making it challenging for companies to accurately capture their effects on financial performance under current accounting standards. The IASB’s amendments to the IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures are designed to address these challenges and help companies better reflect these contracts in their financial statements.
The key changes include:
- Clarification of the ‘own-use’ requirements: Companies will now have clearer guidance on applying the accounting treatment for these contracts.
- Permitting hedge accounting: These contracts can now be used as hedging instruments, allowing companies to better manage and report associated risks.
- New disclosure requirements: Companies will need to provide additional information that will help investors understand how these contracts affect their financial performance and cash flows.
Andreas Barckow, Chair of the IASB, stated, “These amendments reflect our commitment to ensuring that accounting standards remain relevant and responsive to evolving market needs.”
The amendments are mandatory for annual reporting periods starting on or after 1 January 2026, though companies may choose to apply them earlier.
