Energy suppliers toil hard to drill own through embedded options.

Position:IFRS - Brief article

The group finance director of gas provider Centrica has revealed some of the teething problems faced by the energy sector following the adoption of international financial reporting standards (IFRS). Phil Bentley FCMA said that IAS39 in particular had "caused a lot of complexity".

He told FM that one of the main challenges facing gas suppliers was how to value embedded options in wholesale gas purchase contracts.

"Under IAS39 you have to decide which contracts are for 'own use', which are for 'hedging' and which are for 'trading'. It requires that you value any embedded options and then mark to market your procurement book," he said. "That's incredibly complicated. It involves hundreds of contracts."

Bentley's experience is supported by a recent report from PwC, which concludes that oil, gas and other utilities firms have found it particularly tough dealing with rising energy prices, supply uncertainty and accurate delivery of IFRS.


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