BP rides the fair value see-saw
BP, the oil giant, this week wrote down nearly $400m (£205m) of assets from its balance sheet, reversing an increase it had booked only the previous quarter
The extraordinary volatility, caused by IFRS fair value rules, was announced
this week as the oil giant recorded full-year profits of $22.3bn.
The company booked the accounting writedowns as a result of changes to its
estimation of derivatives held. Futures contracts on oil and other products had
changed dramatically in value over the quarter, reflecting in part the change in
the oil price, the company said.
The disclosures are the latest evidence of the fluctuations caused by fair
value accounting. IFRS introduced the concept, as a replacement to historical
cost accounting used under UK GAAP.
BP had predicted that
the issue of fair value would have a telling impact on its performance in its
most recent trading statement.
BP said: ‘A significant
negative impact related to IFRS fair value accounting is expected in the fourth
quarter, compared to a significant positive impact in third quarter.’