Petrobras Adopts Hedge Accounting

Source: www.gulfoilandgas.com 7/10/2013, Location: South America

Petrobras announces that, as of mid-May 2013, it began applying the practice known as Hedge Accounting to its exports.

This practice, which is regulated in Brazil by means of accounting pronouncement CPC38 – Financial Instruments: Recognition and Measurement, allows companies to reduce impacts to their periodic results caused by exchange rate changes, since that provided companies generate future cash flows in another country’s currency that equal and have opposite directions.

For Petrobras, this mechanism initially encompasses approximately 70% of the total net debt exposed to changes in exchange rate, safeguarding approximately 20% of exports for a seven-year period.

By applying Hedge Accounting, the gains or losses arising from debt in US dollars, caused by changes in the exchange rate, will only affect Petrobras’ results when exports take place. Until these exports take place, the referred changes will be accumulated in a stockholders’ equity account.

The application of this practice allows Petrobras’ accounting results to be better aligned with its economic and operating reality.

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