A joint study by the Association of Chartered Certified Accountants (ACCA) and the Adam Smith Business School at the University of Glasgow has highlighted the diverse ways companies account for carbon-related instruments – such as carbon allowances, carbon credits and carbon quotas - in their financial statements.
The study reads: “Companies adopt various accounting treatments for carbon-related instruments within their statement of financial position and statement of profit or loss.”
“Carbon-related instruments are recognised as ‘intangible assets’, ‘inventories’ or ‘other assets’. Further, some companies recognise financial assets related to such instruments (primarily derivatives),” it continues. “On the liabilities side, provisions relating to carbon-related instruments are most often observed, followed by deferred income.”
In addition, the researchers found that a variety of terms are used to describe carbon-related instruments, and many variations of each term was observed.
An ACCA summary stated: “It’s difficult to tell whether two or more companies have applied a consistent accounting treatment for the same instrument, even when the circumstances are alike. The present situation is challenging for preparers, auditors and users alike.”
The report recommends that standard-setters, in particular the IASB, develop a global standard to promote consistency in the account treatments of climate-related instruments across jurisdictions.
