19. May 2023

Accounting for Power Purchase Agreements under IFRS 9: ASCG provides Feedback on IFRS IC Outreach

The ASCG participated in a survey of national standard setters by the IFRS Interpretations Committee on the scope of IFRS 9 Financial Instruments on contracts for the purchase or sale of a non-financial item. The background to this is a submission received by the IFRS IC with questions on the accounting treatment of power purchase agreements in the context of the own-use exemption in accordance with IFRS 9.2.4 et seq. Feedback on this was requested, on the basis of which a possible referral to one of the next IFRS IC meetings will take place.

The ASCG has collected extensive feedback on this matter from major auditing firms and numerous affected companies in Germany and has today submitted a bundled feedback to the IFRS IC staff.

Overall, against the backdrop of current market-related and geopolitical developments, our outreach has revealed a variety of corporate practices on power purchase agreements and their accounting treatment. It became clear that the issues around physical energy deliveries presented in the submission have far-reaching implications for the accounting of the companies concerned. In addition, virtual, i.e. financial or synthetic, energy supply relationships can also be observed, which are not explicitly addressed in the submission.

Outreach participants expressed concerns about fair value accounting for the contracts under consideration, which in their view does not result in a true and fair view of the economic substance of such contracts in certain cases. They call on the IFRS IC and the IASB to decide promptly on the above-mentioned submission – if necessary also in the form of standard-setting activities – as they expect the issues raised to become increasingly relevant in the 2023 financial year.
The first opportunity to technically discuss the matter will be the upcoming meeting of the IFRS IC on 6/7 June 2023. The ASCG will closely follow the further considerations.