Accounting for emissions by entities with direct emissions obligations

Date updated: 2 February 2009

Position

The International Accounting Standards Board (IASB) should prescribe a method of accounting for emissions by entities with direct emissions obligations.

Action

CPA Australia has put to the IASB that the (prospective) accounting standard needs to articulate:

• the recognition and measurement requirements of the emission permits (be they purchased or acquired by way of government grant)
• the recognition and measurement requirements of any government grant received (by way of emission permits granted to the emitter at less than their purchase price)
• the recognition and measurement required of any liability for emissions.

Rationale

The Australian Government has proposed that Australia have a carbon pollution reduction scheme. This is to be a cap and trade scheme and will require entities with facilities which have direct emissions of 25,000 tonnes of carbon dioxide equivalent or more a year to hold a permit for every tonne emitted.

Currently, there is no accounting standard or interpretation which deals specifically with the accounting for emission permits.

The European Union (EU) emissions scheme is one example of an operating cap and trade scheme.

The PricewaterhouseCoopers publication Trouble-entry accounting identified a divergence in the accounting for emissions permits, government grants and emissions liabilities adopted by EU entities with direct emissions obligations.

In the absence of an accounting standard or interpretation, a similar level of divergence is Iikely in the accounting practices adopted by emitters subject to the Australian scheme.

The resultant lack of comparability of financial statements has the potential to negatively impact the decision making of users – an outcome not consistent with the objective of financial reporting.

In the second half of 2007, CPA Australia wrote to the IASB and the Australian Accounting Standards Board (AASB) on these issues. The IASB has now included emissions trading on its work program.