Commodity derivative transaction comparability: evidence from South Africa10 July 2014
Financial statements are used by investors and financiers in their investment or financing decisions. The accounting treatment of individual transactions is reflected in the annual financial statements; therefore, similar transactions should be accounted for similarly by organisations in the same industry, otherwise these financial statements become incomparable. Commodity derivatives are utilised extensively by agricultural companies and processors in their risk management strategies. The accounting standard, IAS 39, on financial instruments such as commodity derivatives should be interpreted and applied consistently in order to ensure comparability of financial statements. Within the South African agricultural companies and processors context, this paper identified and considered eight basic transactions commonly used when buying and selling grain. It was found that there is not always a consistent accounting treatment of these transactions among industry players and therefore a best practice methodology for interpreting and applying the accounting standard was formulated for each of the eight transaction types.