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  • IAS 39 PAPER – No. 3
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This paper is the product of deliberations by the IEAF on IAS 39 with the aim to clarify the accounting treatment for volumetric flexibility included in Own Use contracts and whether this flexibility is precluded from Own Use treatment under IAS 39, paragraph 7.

This paper sets out a proposed methodology for determining whether volumetric flexibility included in Own Use contracts is a written option, which in accordance with IAS 39 requires the full contract which contains a written option, to be marked to market with respective gains or losses being recorded through the income statement.

Applying this methodology, an entity would determine whether volumetric flexibility
provided to a counterparty in a contract constitutes a written option as per IAS 39, paragraph 7. Due to the diversity of contracts, unique contractual terms and differing market structures each company must perform its own assessment to determine whether the volumetric flexibility in its contracts meets the definition of a written option and is therefore precluded from Own Use treatment.

The appropriate approach to this assessment is to determine whether the “option holder” could exercise the “option” in response to changes in market prices to directly profit from these changes. This approach is supported by the generally accepted market definition of an option, along with the implementation guidance A.2 in IAS 39.

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