Happy New Year to all my valued subscribers!
January is here, and for accountants, that usually means two things: fresh resolutions and new IFRS requirements. Now, I can’t help much with the resolutions (good luck with the gym!), but this edition of Reporting Period is here to help with the IFRS amendments now effective for this financial statement preparation season.
We’ll also take a look at the latest developments. Just before the holidays, the IASB wrapped up their agenda by finalising amendments to IFRS 9 and IFRS 7 on power purchase agreements.
Let’s dive in.
Note: You’re currently reading an older issue from the archive, so all links have been removed.
Year-end reminders
With most companies operating on a 31 December year-end, many of you will be working on the 2024 annual financial statements in the coming weeks. Thus, remember the following IFRS amendments which became effective in 2024:
- Classification of liabilities as current or non-current (amendments to IAS 1). Learn more in BDO’s publication.
- Lease liability in a sale and leaseback (amendments to IFRS 16). Learn more in KPMG’s publication.
- Disclosures of supplier finance arrangements (amendments to IAS 7 and IFRS 7). Learn more in PWC’s publication.
Additionally, note that 1 January 2025 marks the effective date for the Lack of Exchangeability amendments to IAS 21. These amendments clarify how to determine whether a currency is exchangeable and how to estimate a spot exchange rate when exchangeability is lacking. Entities dealing with non-exchangeable currencies should consult EY’s publication on this topic.
For further insights into relevant issues for this reporting season, refer to the latest edition of Deloitte’s Closing Out.
PPAs – final amendments
Just before the holiday season, the IASB issued final amendments related to power purchase agreements (PPAs), using the broader term “nature-dependent electricity contracts.” These contracts enable businesses to procure electricity directly from renewable energy sources, where output varies due to natural conditions. This variability has prompted challenges related to the ‘own use’ exception and hedge accounting.
The amendments to IFRS 9 and IFRS 7:
- Specify the factors an entity must consider when applying the own-use exception in IFRS 9.2.4.
- Allow entities to use contracts for renewable electricity with specified characteristics as hedging instruments.
- Add specific disclosure requirements regarding these contracts.
Learn more:
- KPMG’s publication.
- PwC’s publication.
The Nature-dependent Electricity Contracts amendments are currently available exclusively to premium IFRS.org subscribers. However, these amendments will soon be integrated into the 2025 consolidated IFRS Accounting Standards, at which point all registered users will have access. They are effective from 2026, with early application permitted.
IFRS Interpretations Committee Meeting
The IFRS Interpretations Committee met on 26 November 2024, and its meeting notes were released after the December edition of Reporting Period was finalised. Let’s now catch up on the agenda decisions from that meeting.
Assessing hyperinflationary economies
The Committee considered the indicators of hyperinflationary economies under IAS 29. In essence, they concluded that general practice involves considering indicators beyond those explicitly listed in paragraph 3 of IAS 29. Additionally, the Committee emphasised that subsidiaries (in their separate financial statements) and parents (in their consolidated financial statements) are expected to reach consistent conclusions regarding whether and when an economy is hyperinflationary.
Learn more:
- The Committee’s tentative agenda decision.
- Staff paper prepared for the meeting.
Next steps: The Committee’s tentative agenda decision is open for comment until 3 February 2025.
Carbon credits and climate-related R&D activities
The second agenda decision focused on the capitalisation of expenditures related to carbon credits and R&D activities linked to climate-related commitments. The Committee noted that the IASB is considering a potential project on pollutant pricing mechanisms, some of which include carbon credits. As a result, the Committee decided not to address this topic.
Regarding R&D activities, the Committee reiterated that the general criteria in IAS 38 should be applied to determine whether capitalisation is appropriate.
Learn more:
- The Committee’s tentative agenda decision.
- Staff paper prepared for the meeting.
Next steps: The Committee’s tentative agenda decision is open for comment until 3 February 2025.
PS. On the subject of carbon credits, you may recall from the November edition of Reporting Period the ESMA’s guidance on accounting for emissions trading schemes and other carbon pricing programmes under IFRS. The publication also provides an overview of current accounting practices among European companies.
That’s all for this edition of Reporting Period. Your feedback is invaluable, so feel free to reply directly to this email with any thoughts and suggestions.
Thank you for being a subscriber.
Best regards,
Marek