Abstract
<p>This article aims at ascertain if external and independent audit can improve the reliability of IAS/IFRS financial statements with regard to the accounting of complex contractual instruments such as swing contracts for the sale and purchase of energy commodities. To this end, first of all the standard contents of the contracts at stake will be identified, based on those usually recurring in corporate practice. Then, it will be ascertained whether such contracts subtend an industrial usage only, so that the pertinent arrangement has to be accounted as a standard purchase/sale transaction, or whether the counterparts are pursuing financial intendments, since in such assumption the swing contract must be accounted as a financial instrument in accordance with IFRS 9/IAS 39. Conclusively, the modalities will be analysed which are used by a number of European companies whose typical activity is the purchase/sale of energy commodities, to account such kind of contracts. The survey aims at verify if the accounting modalities chosen by companies whose financial statements are subject to an external and independent audit (voluntarily or mandatorily pursuant to the applicable laws) are more compliant with the principle of faithful representation than those which are not subject to an external and independent audit.</p>
Highlights
Introduction and Study ObjectivesContracts containing a swing provision are prolonged period agreements for the supply of goods/services which oblige the purchaser to pay, for each year of duration, the price of a pre-determined minimum quantity of the output which is the subject-matter of the purchase, whether the purchaser should not withdraw it
The aim of this article is preliminarily to single out, among the possible accounting methodologies of swing contracts for the selling and purchasing of energy commodities in IAS/IFRS balance sheets, the one which best comply with the principle of faithful representation, if necessary overcoming the formal framework of the agreement in order to focus on its substantial features
The purchase of big quantities of energy commodities produced in productions/refinement plants inside and/or outside Europe, made by companies listed on European stock exchanges and/or companies which – in any event – draft their balance sheets in compliance with IAS/IFRS accounting principles;
Summary
Introduction and Study ObjectivesContracts containing a swing provision ( called take-or-pay or variable base-load contracts) are prolonged period agreements for the supply of goods/services which oblige the purchaser to pay, for each year of duration, the price of a pre-determined minimum quantity of the output which is the subject-matter of the purchase, whether the purchaser should not withdraw it (irrespective of being the failure to withdraw attributable or not to the purchaser). A contractual provision of take-or-pay corresponds to a long term agreement where the purchaser undertakes, for each year, alternatively to: (1) take a minimum output as specified in the contract, and, at the same time, pay the corresponding price (agreed according to a specific contract); or (2) pay the price of the said minimum contractualised output but without taking it (Note 1). Such clause is usually used in long term contracts for the selling and purchasing of commodities, and in particular of energy commodities ( crude oil, petrol by-products, gas and electrical energy). The take-or-pay provision, is a real risk allocation mechanism aiming at limiting the potential financial benefits of the buyer, who would benefit-otherwise-indirectly of the investments made by the seller, to obtain at the end almost the sharing of the said investment risks between the parties
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