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This paper represents the view of the IEAF on IAS 39 with the aim to clarify the accounting practice and criteria for portfolio-based commodity hedge accounting.

It is common practice for energy/commodity companies to hedge on a macro-level, i.e., all exposures in the same commodity category are combined (netted). In addition, companies with physical generating capacity enter into a series of transactions in order to optimise earnings based on current and forward prices. The simplest way to designate and monitor these hedging instruments related to optimisation activities is on a portfolio basis.

It is the interpretation of the IEAF that macro-hedging as described above for commodity contracts is not permitted under IAS 39 but that hedging on a portfolio basis should be permitted when certain requirements are met.

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