Accounting for electricity derivatives under IAS 39

• Type: Article in International Scientific Journal
• Date: 2007

Authors

Patrícia Teixeira Lopes (Author) FEP

Journal

Title: Journal of Derivatives & Hedge Funds

Vol. 13 No. 3

Pages: 233-246

ISSN: 17539641

Publisher: Palgrave Macmillan

Indexing

Business Source Complete (EBSCO)

Scientific classification

FOS: Social sciences > Economics and Business

CORDIS: Social sciences > Economics > Management studies > Administration

Other information

DOI: 10.1057/palgrave.jdhf.1850074

Abstract (EN): This paper analyses the impact of accounting rules on the accounting for hedges with energy derivatives in the context of the launch of MIBEL Derivatives Market. Specifically, the key questions of accounting for nonfinancial derivatives raised by IAS 39, following the mandatory adoption of IFRS in Europe, are described. Under certain conditions, IAS 39 allows contracts on commodities to be exempted from its rules. Those conditions are, however, quite strict and require a case-by-case analysis. IAS 39 requires all derivatives to be reported at fair value. Nevertheless, it allows for hedge accounting, provided that certain conditions are met, eliminating undesirable income volatility. Futures contracts pay-off profile is generally the inverse of the underlying item, and so futures tend to be easily qualified for hedge accounting rules of IAS 39, due to the way in which hedge effectiveness is measured. The paper shows that as far as energy producers and users are concerned, when hedges are accomplished with exchange-traded futures, compliance with IAS 39 hedge accounting rules is simple and straightforward.

Language: English

Type (Professor's evaluation): Scientific