IASB Exposure Draft Contracts for Renewable Electricity (Proposed amendments to IFRS 9 and IFRS 7)

Page 1 of 10Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)

2 August 2024Dr Andreas BarckowInternational Accounting Standards BoardColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Andreas,IASB Exposure DraftContracts for Renewable Electricity(Proposed amendments to IFRS 9 and IFRS 7)

The Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditing,ethics and sustainability disclosures for professional accountants in Hong Kong. We aregrateful for the opportunity to provide you with our comments on this Exposure Draft(ED).The HKICPA appreciates the IASB’s endeavours to address the practical issues relatedto the accounting for contracts for renewable electricity (CREs). In Hong Kong, CREsare not prevalent at the moment and the ED is anticipated to primarily impact certaincompanies with overseas operations. Nevertheless, we have significant concerns oncertain aspects of the proposals. We believe the proposal should be pursued withthorough consideration, allowing for sufficient time and input from stakeholders to avoidany unintended consequences. We provide detailed comments in the Appendix andsummarise our primary concerns and recommendations below.Scope of the proposed amendmentsWe have significant concerns regarding the scope of the proposed amendments. Weconsider that the proposals, which would provide a more favourable treatmentexclusively to CREs with specified characteristics, lack principle-based justification. Weemphasise the importance of neutrality of financial reporting for financial statements tobe faithfully representational. Providing further exceptions to an existing exception inIFRS 9 Financial Instruments could have a detrimental impact on comparability andconsistency in accounting for contracts with similar economics in financial statements.Accordingly, we recommend the IASB re-assess the scope of the amendments byadopting a principle-based approach, particularly, extending the scope of the proposedamendments to encompass all contracts that exhibit similar economics, regardless ofwhether they are related to electricity contracts of variable volume or green issues.Page 2 of 10Proposed ‘own-use’ requirements and proposed hedge accounting requirementsWe have identified several issues regarding the application of the proposed ‘own-use’requirements and hedge accounting requirements that require further clarification orguidance. In particular, hedge accounting is a complex area and the ED proposesexceptions to the general requirements for designating and measuring a hedged itemfor in-scope CREs. However, the ED is unclear as to how the exceptions would interactwith the existing hedge accounting requirements in IFRS 9. For these reasons, werecommend that the IASB provide guidance on how the proposed hedge accountingrequirements are intended to apply for CREs within the scope of the ED. We noted thatthe Appendix to the IASB staff paper March 2024 meeting provides an illustrativeexample of applying the proposed hedge accounting requirements. We recommend thatthe IASB build on that example to demonstrate how the proposed requirements interactwith the existing requirements in IFRS 9, including the determination of hedgeineffectiveness and accounting for cash flow hedge reserve under IFRS 9.6.5.11 and 12,as well as how entities should apply the proposed hedge accounting upon transitionwhen it changes the designation of the hedged item without the need to discontinue thehedging relationship.Proposed disclosure requirementsIn addition, we have significant concerns about the proposed disclosure requirements inIFRS 7 Financial Instruments: Disclosures. The proposed disclosures require excessivedetails which would impose onerous burden on preparers. Specifically, we do notsupport the fair value disclosures in ED.IFRS 7.42T(b)(i). We understand that this EDwas developed based on stakeholders’ view that accounting for CREs, which aretypically long-term, at fair value does not provide useful information. Therefore, it iscounterintuitive that entities applying the proposed ‘own-use’ requirements are requiredto disclose fair value in financial statements. Furthermore, practical challenges exist indetermining a reliable fair value for these long-term contracts due to the significantuncertainty arising from the nature-dependent and volume risk adjusted characteristics,and this would likely increase the costs of preparing the fair value disclosures. In light ofthese concerns, we strongly recommend the IASB remove the fair value disclosurerequirements and conduct field tests with preparers that have contracts within the scopeof the ED to ensure that all the proposed disclosures are practical and useful, and thatthe associated costs of implementation do not outweigh the benefits.If you have any questions regarding the matters raised in this letter, please contactCarrie Lau (carrie@hkicpa.org.hk) or Shiro Lam (shirolam@hkicpa.org.hk), AssociateDirectors of the Standard Setting Department.Sincerely,Cecilia KweiDirector of Standard SettingPage 3 of 10Work undertaken by the HKICPA in forming its views:

The HKICPA:

(a)

issued an Invitation to Comment on the ED on 9 May 2024 to its members andother stakeholders;

(b)

sought input from its Financial Instruments Advisory Panel;

(c)

sought input from targeted stakeholders engaging in power generation; and(d)

developed its views through its Financial Reporting Standards Committee, havingreflected on its respondents’ views. The Committee comprises preparerrepresentatives from various industry sectors, regulators, as well as technical andindustry experts from small, medium and large accounting firms.Detailed comments on the IASB ED

1.We appreciate the IASB’s timely response in addressing stakeholders’ concerns andchallenges in accounting for contracts for renewable electricity in view of the growingdemand for renewable energy globally. While the impact of CREs, and hence theED, on entities operating in Hong Kong is limited at this stage, there could bepotential implications for their investments in entities operating in other jurisdictionsengaging in the sale and purchase of renewable electricity. Nevertheless, we havesignificant concerns on certain aspects of the proposals. We provide our detailedcomments and recommendations on the ED below.Question 1: Scope of the proposed requirementsA. Lack of principle-based justification for the scope

2.We have significant concerns regarding the scope of the proposed ‘own-use’requirements and the hedge accounting requirements. We consider that theproposals, which would provide a more favourable treatment exclusively to CREswith specified characteristics, lack principle-based justification. We emphasise theimportance of neutrality of financial reporting in order for financial statements to befaithfully representational. We consider that the IASB should re-assess the scope ofthe proposals to include other contracts with similar economics for the followingreasons:

(a) ‘Own-use’ requirements

3.Considering the unique characteristics of electricity which cannot be stored once itis produced, we observed that a general mismatch situation can occur between thevolume of electricity produced and the demand from purchaser at the time ofelectricity production. Such mismatches are not limited to cases where the deliveredvolume of renewable electricity in each time period is variable. It can also arise wherethe delivered volume is fixed. For example, mismatches can arise between the fixedvolume of electricity produced from non-renewable nuclear generation and thepurchaser’s actual consumption during the same time period, such as when thepurchaser does not require electricity on weekends or evenings.We believe that addressing the above general mismatches are of equal importance.However, the current proposals limit their scope to renewable energy with variableproduction volume.AppendixPage 4 of 10(b) Hedge accounting requirements

4.Similarly, we consider that the current proposed amendments to hedge accountingrequirements appear to be more lenient towards specified CREs, while othercontracts with similar economics are unable to apply the proposed hedge accountingrequirements due to the existing requirements of IFRS 9 and IAS 39 FinancialInstruments: Recognition and Measurement for those other contracts as highlightedin the IFRS Interpretation Committee (IFRS IC) March 2019 agenda decision(Agenda Decision), which states that entities cannot designate all (or a percentage)

of the output/sales in a period as the hedged item due to a lack of required specificity.We consider that the issue addressed in the proposals is essentially the same as the‘load-following swap’ issue discussed in the Agenda Decision and so, instead oflimiting the scope of the proposals to certain CREs, the IASB should address thebroader matter regarding how uncertainty over the timing and magnitude of aforecast transaction affects the ‘highly probable’ assessment under IAS 39 and IFRS

9.(c) Recommendations

5.We are concerned that providing further exceptions to an existing exception in IFRS9 could have a detrimental impact on comparability and consistency in accountingfor contracts with similar economics in financial statements. Therefore, we believe itis necessary for the IASB to reassess the scope of the proposed amendments byadopting a principle-based approach. Accordingly, we recommend that the IASB:

(i)

broaden the scope of the proposals to include all electricity contracts, regardlessof whether the volume of electricity produced is fixed or variable, and whetherthe source is renewable or non-renewable; and(ii) reconsider the necessity of the ‘nature-dependent’ criterion in ED.IFRS

9.6.10.1(a) if the scope is expanded to cover all electricity contracts (see alsoour responses in paragraphs 8-10).

6.We acknowledge that the Agenda Decision was made based on the relevantaccounting standards issued at that time, prior to the proposed changes to hedgeaccounting requirements in the ED. If the IASB were to proceed with the proposedamendments, it is crucial to avoid any potential confusion for entities whendetermining how to apply hedge accounting to contracts with similar economics(whether within or outside the scope of the ED). In light of this, we recommend thatthe IASB conduct a thorough review of the implications of the proposed amendmentson the Agenda Decision, and explain their thinking on this issue in the Basis forConclusions of the amendments.

7.In addition, as the ED only proposes amendments to the hedge accountingrequirements in IFRS 9, but not those in IAS 39, we are concerned that not makingthe corresponding amendments to IAS 39 would exacerbate the lack of comparabilitybetween financial statements applying IFRS 9 and IAS 39, given that entitiescurrently are permitted to choose IFRS 9 or IAS 39 for hedge accounting. Accordingly,we recommend that the IASB consider gathering information from preparers inrenewable energy industries across various jurisdictions to assess whether at leastthe majority of entities (if not all) are applying IFRS 9. This would ensure that theamendments can effectively address the stakeholders’ needs without unfairlydisadvantaging those applying IAS 39. If the IASB maintains its position of notamending IAS 39, we consider that providing a sufficient explanation of its rationalein the Basis for Conclusion would be beneficial.Page 5 of 10B. Application of the criteria in ED.IFRS 9.6.10.1(a)-(b)

8.We consider that the meaning of ‘nature-dependent’ in ED.IFRS 9.6.10.1(a) isunclear as the ED only provides examples of ‘wind, sun and water’. In addition,ED.BC9 states that biomass energy contracts and ‘some’ hydroelectricity contractsare considered outside the scope of the proposed amendments as they might onlyhave one of the characteristics in ED.IFRS 9.6.10.1. However, the reasons forexcluding these contracts are not clearly explained. In particular,(a) it is unclear how to determine the types of hydroelectricity that would fall withinthe proposed scope; and(b) it is arguable that the output of biomass energy could be dependent on nature,e.g. a biomass plant’s catchment area could be destroyed by a wildfire, and sosuch contracts may be considered as in-scope.

9.The meaning of ‘nature-dependent’ is important to the determination of the scope ofthe proposed amendments. However, the interpretation of the term can be verybroad and could lead to varying interpretations. In light of this concern and thedifficulties in defining the term precisely, we recommend that the IASB considerwhether the scope should focus solely on the criterion in ED.IFRS 9.6.10.1(b)

regarding the volume risk associated with the electricity generation, same as whatwe recommended for a principle-based approach for the proposals in paragraph 5above.

10.However, if the IASB decides to restrict the scope of the proposals to CREs only andretain ED.IFRS.9.6.10.1(a), we suggest that the IASB clarify the areas in paragraph8 by providing relevant application guidance with examples to illustrate how thecriteria should be applied for different types of CREs (e.g. hydroelectricity contracts).

11.Furthermore, we have the following drafting recommendations to enhanceconsistency in practical application of the new terms in the ED:

(a) Define the term ‘pay-as-produced’ in Appendix A to IFRS 9 instead of explainingits meaning in the Basis for Conclusions.(b) Refine the phrasing of ‘net settlement of the difference’ as the word ‘difference’already implies a net amount.(c) Define the term ‘referenced production’, particularly, whether the seller mustown, operate or lease the ‘referenced production facility’ for the contract toqualify for the exception, or if any production facility can be referenced.Question 2: Proposed ‘own-use’ requirements

12.We have identified several practice issues and challenges with the proposed ‘own-use’ requirements. Our concerns and recommendations are as follows.A. Timing for performing the ‘own-use assessment’ between ED.IFRS 9.6.10.3 andIFRS 9.2.4

13.ED.IFRS 9.6.10.3 set out the factors that entities must consider at inception and ateach subsequent reporting date for applying the ‘own-use’ exception under theproposals. The timing of performing the ‘own-use’ assessment appears to beinconsistent with the current requirements in IFRS 9.2.4 which requires continuousassessment of the eligibility of ‘own-use’ exception throughout the reporting period.

14.We understand that the purpose of the proposals, as explained in ED.BC13, aims toaddress stakeholders’ concerns regarding contracts to buy and take delivery ofPage 6 of 10renewable electricity, specifically from the purchaser’s perspective. However, thewording of ED.IFRS 9.6.10.3 seems to imply that only purchasers are required toperform the ‘own-use’ assessment at the inception and subsequent reporting dates.If that is the case, it would grant favourable treatment only to this specific group ofstakeholders, as all other contracts outside the scope of the ED would still berequired to perform continuous assessment under IFRS 9.2.4.

15.We are of the view that the continuous ‘own-use’ assessment should apply to allcontracts, regardless of their types and whether they are viewed from sellers’ orpurchasers’ perspective. If the contracts do not meet the ‘own-use’ requirements atany time during the year, they should be immediately accounted for as derivativesmeasured at fair value through profit or loss to ensure that their nature is faithfullyrepresented in the reporting period.

16.We believe that the IASB did not intend to introduce any inconsistency between IFRS

9.2.4 and ED.IFRS 9.6.10.3, and therefore, the observation made above appears tobe a drafting issue. To avoid any confusion and ensure consistent application, werecommend that the IASB clarify whether the assessment in ED.IFRS 9.6.10.3 alsorequires a continuous assessment, same as that required under IFRS 9.2.4.B. Interpretation and application of ED.IFRS 9.6.10.3(a)

17.ED.IFRS 9.6.10.3(a) requires entities to assess the purpose, design and structure ofthe CREs for the purpose of applying IFRS 9.2.4. However, ED.IFRS 6.10.2 explicitlystates that the proposed requirements shall not be applied by analogy to othercontracts, items or transactions. This raises the following questions:

(a) Are entities prohibited from considering the purpose, design and structure of allother contracts outside the proposed scope when assessing their eligibility of‘own-use’ exception under IFRS 9.2.4?(b) Do entities need to revise their assessments for other contracts outside theproposed scope to exclude the consideration of the purpose, design andstructure of those contracts, even if they have already conducted suchassessments at contract inception prior to the issuance of this ED?

18.We understand that in practice, entities consider the purpose, design and structureof the contract when applying IFRS 9.2.4 even though there is not any explicitrequirement to do so in the current standard. We also believe that the IASB has nointention to disrupt the current practice of assessing the purpose, design andstructure of contracts. However, considering the potential impact of the wording inED.IFRS 9.6.10.3(a), we recommend that the IASB reconsider the appropriatenessand necessity of including ED.IFRS 9.6.10.3(a) in the final amendments. If the IASBdecides to retain it, we suggest incorporating it as application guidance for IFRS

9.2.4, or refining the wording to ensure that such an assessment is not limited solelyto CREs with the specified characteristics.

19.In addition, concerning the application of ED.IFRS 9.6.10.3(a) which requires entitiesto consider reasonable and supportable information available at the reporting dateabout expected changes in their purchase or usage requirements for a period notshorter than 12 months after the reporting date (or its normal operating cycle), wehave identified the following questions:

(a) Do entities have a choice to consider information beyond 12 months after thereporting date, even if their operating cycles are not longer than 12 months?(b) How should entities assess CREs with a remaining duration of less than 12months after the reporting date, as the requirement seems to imply that theassessment must cover a period not less than 12 months?Page 7 of 10

20.We consider that the above questions can be addressed by refining the wording inED.IFRS 9.6.10.3(a). A possible redrafting of the paragraph would be as follows:

‘……for a period not shorter than 12 months after the reporting date (and based onthe entity’s normal operating cycle as described in paragraph B95 of IFRS 18, if it isshorter than 12 months) and that period shall not be longer than the remainingduration of the contract.’C. Interpretation and application of the three criteria in ED.IFRS 9.6.10.3(b)(i)-(iii)

21.We identified the following practical issues that merit the IASB’s consideration, alongwith our recommendations:

(a) A question arises as to whether contracts involving the sales of unusedelectricity arising from structural imbalances would meet the requirement ofED.IFRS 9.6.10.3(b)(i). Some respondents considered that such contracts maynot be eligible for the proposed ‘own-use’ requirements, as structuralimbalances, of which the entity is aware (e.g. selling unused electricitygenerated at night due to inability to use or store it) are not volume risk becausevolume risk should pertain to uncertainties related to weather conditions that theentity cannot predict, e.g. when the sun shines or the wind blows. We considerthat the ED is not clear in this aspect and recommend that the IASB explicitlyclarify whether ‘structural imbalances’ are within the scope and provide therationale behind its decision.(b) The term ‘timing or price of the sale’ in ED.IFRS 9.6.10.3(b)(ii) is consideredunclear as to whether an entity can still meet the requirement of aligning with itsexpected usage requirements if it can affect the price but not the timing of thesale. Furthermore, as electricity cannot be stored after generation, theconsideration of ‘timing’ may not be relevant.To avoid confusion, we recommend that the IASB refine the wording as ‘eitherthe timing or price of the sale’ to specify that an entity does not meet the criteriaif it has the practical ability to affect either the timing or price of the sale.(c) The ‘one month after the sale’ example provided in ED.IFRS 9.6.10.3(b)(iii) isconsidered too restrictive in practice. Entities may have practical difficulties infulfilling this criterion in certain situations, such as temporary factory shutdownsunder unforeseeable occasions. Given that the proposed requirement hasalready required the need for the purchase to be made within a ‘reasonable’time frame, we recommend that the IASB remove the specific ‘one month’example so that entities can apply judgement to determine the reasonable timeframe with respect to their own circumstances.

22.Furthermore, a few respondents considered that the three new criteria in ED.IFRS

9.6.10.3(b) are too restrictive and impractical to apply in practice, and wereconcerned that not many CREs could benefit from the proposals. To help assess ifthe objective of the proposals can be achieved and identify any unintendedconsequences that may arise from the proposals, we recommend that the IASBconduct field tests to thoroughly assess the practicability of the three criteria.D. Drafting comments

23.In addition to the above application questions, we have the following draftingcomments and recommendations to enhance consistent application of the ED:

(a) Relocate the proposed ‘own-use’ requirements in ED.IFRS 9.6.10.1 - 6.10.3Page 8 of 10from Chapter 6 to Chapter 2, considering the fact that some preparers are stillapplying the hedge accounting requirements in IAS 39 and may not have yetapplied the hedge accounting requirements in IFRS 9.(b) Define the term ‘delivery’ in Appendix A to IFRS 9 instead of referring it to anIFRS IC agenda decision as quoted in the Basis for Conclusions.Question 3: Proposed hedge accounting requirements

24.Some of our respondents are concerned that the proposal in ED.IFRS 9.6.10.6,which requires an entity to measure the hedged item using the same volumeassumptions as those used for measuring the hedging instruments, might result inunintended consequences. There is a potential risk of misinterpreting ED.IFRS

9.6.10.6 as a complete exception to Chapter 6.3 of IFRS 9 on requirements forhedged item. Specifically, the proposal in ED.IFRS 9.6.10.6 might be viewed bypreparers as a ‘free pass’ to achieve a ‘perfectly effective hedge’ by asserting thatthe only ‘mismatch’ between the measurement of the hedged item and the hedginginstrument is the ‘volume mismatch’, which they believe can be disregarded underED.IFRS 9.6.10.6.We believe that the IASB does not intend for ED.IFRS 9.6.10.6 to be understood asa ‘free pass’ to achieve a ‘perfectly effective hedge’. However, we observed that theproposed amendments are currently located in a ‘separate section’ wholly underED.IFRS 9.6.10 without direct linkage to existing hedge accounting requirements. Toavoid any confusion and possible risk of misinterpretation by preparers, werecommend that the IASB add a sentence in ED.IFRS 9.6.10.6, emphasising that allother applicable requirements in Chapter 6 of IFRS 9, including the determination ofhedge ineffectiveness, continue to apply for hedge accounting for CREs.

25.Concerns have also been raised about the potential implications of the proposals onthe accounting for cash flow hedge reserve after the hedge is discontinued. Currently,cash flow hedge reserve is adjusted in accordance with IFRS 9.6.5.11 andsubsequently accounted for in accordance with IFRS 9.6.5.12 upon discontinuationof the hedge. However, IFRS 9.6.5.12 was developed for general situations prior tothe issuance of this ED, where the hedged item is measured based on the requiredspecificity. It is unclear whether the IASB has considered if IFRS 9.6.5.12 would stillbe applicable to the new situations arising from the proposals, where the hedgeditem was measured based on the same variable volume assumption as the hedginginstrument applying ED.IFRS 9.6.10.6 prior to the discontinuation.Accordingly, we recommend the IASB provide application guidance on accountingfor cash flow hedge reserve after discontinuation of the hedge, when the hedgeditem is measured applying ED.IFRS 9.6.10.6. We noted that the IASB staff paperMarch 2024 meeting, AP3B (Appendix) provides an illustrative example of applyingthe proposed hedge accounting requirements. We recommend that the IASB buildon that example to demonstrate:

(a) how the proposed requirements interact with IFRS 9.6.5.11 regarding the ‘lower’of test for measuring the cash flow hedge reserve; and(b) how the cash flow hedge reserve should be accounted for after discontinuationof the hedge when ED.IFRS 9.6.10.6 is applied, and explain the differences, ifany, between the proposal and the accounting treatment for general situations.Page 9 of 10Question 4: Proposed disclosure requirements

26.While we understand that the proposals aim to address investors’ needs inunderstanding the effects of CREs on entities’ financial statements, we haveconcerns on the following areas of the proposals.

27.Firstly, IFRS 7 currently excludes contracts that apply the ‘own-use’ exception fromits scope based on IFRS 7.5, and so CREs that apply the proposed own-userequirements are also scoped out from IFRS 7. It is therefore illogical to requiredisclosures of the proposed information in IFRS 7 for such CREs based on thecurrent scoping paragraphs.

28.Secondly, our respondents expressed significant concern on the excessive detail ofthe proposed disclosures, which would impose onerous burden on preparers.Specifically, we do not support the fair value disclosures under ED.IFRS 7.42T(b)(i).We understand that this ED has been developed based on stakeholders’ view thataccounting for CREs, which are typically long-term, at fair value does not provideuseful information. Therefore, it is counterintuitive that entities applying the ‘own-use’exception for CREs are required to perform fair value measurement and disclose thefair value in the financial statements. Furthermore, our respondents haveemphasised the practical challenges and judgements involved in determining areliable fair value for these long-term contracts due to the significant uncertaintyarising from the nature-dependent and volume risk adjusted characteristics, and thiswould likely increase the costs of preparing the fair value disclosures.

29.Thirdly, we question the practicability of applying ED.IFRS 7.42W, which requires anentity to consider an appropriate level of aggregation of details for disclosures. Forexample, when it comes to aggregate the terms and conditions of the CREs, suchas price adjustment clauses and cancellation clauses, under ED.IFRS 7.42T(a), itbecomes challenging to determine the appropriate level of aggregation. Furthermore,the aggregated information may not be meaningful to the users due to the lack ofnecessary details.

30.In light of the above concerns, we recommend that the IASB:

(a) amend the scope of IFRS 7 to include CREs with the characteristics specifiedin the amendments. We also suggest that the proposed disclosures should onlyapply to contracts that qualify for and have applied the proposed ‘own-use’exception, so that they would not be applicable to CREs that are measured atfair value under IFRS 9.2.5;

(b) remove the fair value disclosure requirements in ED.IFRS 7.42T(b)(i); and(c) conduct field tests with preparers in industries that have contracts within thescope of the ED to ensure that the proposed disclosures are practical anduseful, and that the associated costs of implementation do not outweigh thebenefits.Question 5: Proposed disclosure requirements for subsidiaries without publicaccountability

31.We noted that the IASB decided to require an entity applying IFRS 19 to disclose thesame information for its CREs as those entities applying the proposed amendmentsto IFRS 7. That means no reduction in disclosures for eligible subsidiaries.Accordingly, our responses to Question 4 above equally apply to this question.Page 10 of 10Question 6: Transition requirements

32.We disagree with the proposed transition requirements in ED.IFRS 9.7.2.51 whichpermits early application of the amendments from the date when the amendmentsare issued. Since the IASB plans to issue the amendment in Q4 2024, we areconcerned that entities could apply hindsight until 31 December 2024 (assumingDecember year-end) to determine whether to adopt the amendments for the year.This essentially allows entities to engage in ‘earnings management’ as they couldrestate their financial statements recorded from the beginning of the currentreporting period up to the date of applying the amendments, which would in turnundermine the integrity and comparability of financial reporting. To address thisissue, we recommend modifying the transition requirements to require that any earlyadoption of the amendments must take place at the beginning of the first reportingperiod after the amendments are issued.

33.In addition, we have identified the following areas of the proposed transitionrequirements which require the IASB’s clarification:

(a) A practice issue arises with ED.IFRS 9.7.2.52, which permits an entity to‘change the designation of the hedged item in a cash flow hedging relationshipthat was designated before the date the amendments are first applied’ uponthe transition. Considering that a hedged item, such as forecast sale orpurchase transaction with a fixed volume could have characteristicsfundamentally different from the one with variable volume, it is unclear how anentity should apply the transition requirements to re-designate the hedged itemwithout discontinuing the hedge as permitted under the ED.To ensure consistent application of this transition requirement, we recommendthat the IASB provide guidance that illustrates how an entity should apply theproposed hedge accounting on transition when it changes the designation ofthe hedged item (e.g. changing the hedged forecast purchase transaction froma fixed volume to a variable volume) without the need to discontinue thehedging relationship.(b) While we believe that there is no change to the requirements in IFRS 9.2.5 asa result of the ED, some respondents interpret the wording of the proposals ascompelling all CREs with specified characteristics to apply the ‘own-use’exception, even if they were previously accounted for at fair value under IFRS

9.2.5. To avoid any misinterpretation, we recommend that the IASB clarify inthe final amendments that contracts within the scope of the proposals can stillbe accounted for at fair value through profit or loss if the requirements in IFRS

9.2.5 are met.Question 7: Effective date

34.In respect of setting an effective date of 1 January 2025, we have concerns aboutthe practicability of completing the implementation by that date, especially if the finalamendments are planned to be issued towards the end of 2024. We recommendsetting the effective date for 1 January 2026, with early adoption permitted. Thiswould provide entities with sufficient time to ensure proper implementation of therequirements, while also allowing those entities which are already prepared to adoptthe amendments earlier based on their specific needs and capabilities.~ End ~