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Contracts relating to nature-based electricity help companies to access electricity from sources such as wind or solar power. These are often structured as Power Purchase Agreements (PPA). Purchases under these contracts can fluctuate due to unforeseen events such as weather conditions. The application of current accounting standards could lead to profit and loss effects that do not necessarily adequately reflect the influence of these contracts on the performance of the company preparing the financial statements. The IASB has made the following amendments to enable these contracts to be better recognised in companies' financial statements:

  • Clarification of the application of the own use exemption to these contracts.
  • Amend the hedge accounting requirements to allow contracts for electricity from nature-dependent renewable energy sources to be used as a hedging instrument if certain conditions are met.
  • Introduce additional disclosure requirements to enable investors to understand the impact of these contracts on a company's financial performance and future cash flow.

The amendments are to be applied for financial years beginning on or after 1 January 2026. According to the IASB, early application of the amendments is permitted. However, application in the EU generally requires an EU endorsement.

The press release is available on the IASB website at this link.

KPMG Express Accounting News

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