Changes in the accounting treatment of derivatives

The Accounting Board has issued a statement 1963/2016 concerning the accounting treatment of derivatives. According to the new statement, the accounting treatment may substantially change in the companies reporting derivatives, according to the Accounting Act. The changes are effective immediately and are to be taken into account as early as in the financial statements of the year 2016. The change affects all accounting entities with derivatives. With the introduction of hedge accounting, the necessary changes shall be taken into account.

What is hedge accounting?

Hedge accounting is a method of accounting, the purpose of which is to reconcile the income statement effects of the hedged item (electricity supply) and the hedging instrument (system priced electricity derivative) of the company's accounts and therefore reduce the volatility of earnings, due to a change in the fair value of electricity derivatives. Electricity derivatives are reviewed as required by the international IFRS accounting standard. Currently, the standard is IAS 39 and starting from 01.01.2018; it is IFRS 9.

Enegia provides hedge accounting service as a solution

Enegia carries out hedge accounting by first making a product-specific efficiency analysis. The analysis tests whether the hedging product is powerful enough to hedge the hedging targets. On the basis of the efficiency analysis, the products are divided into very efficient and inefficient products. Very efficient products will be subject to hedge accounting. In hedge accounting is made a monetary offset analysis for each derivative in the portfolio. The result of this analysis explains the efficient and the inefficient share of a derivative. It is possible to record the efficient share of the change in the fair value of the approved electricity derivative in the balance sheet, and only the inefficient share must be recognized as a profit or loss.

Additional information: Jouni Väisänen, Key Account Director, , +358 50 453 6330