IFRIC 3 specifies that emission rights (allowances) granted by government are intangible assets that should be recognised in the financial statements in accordance with IAS 38 Intangible Assets and that as a participant produces emissions, it recognises a provision for its obligation to deliver allowances in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Some of the Board's constituents had expressed concern about a resulting 'accounting mismatch' because the intangible asset is measured at historical cost while the provision is measured at the market value of the allowances needed to settle it.

IFRIC discussed the matter at its 2-3 June 2005 meeting. That discussion included a staff analysis of a proposal by EFRAG for the development of a form of cash flow hedge accounting to reduce the volatility resulting from the timing of receipt of allowances. IFRIC had recommended that the Board consider these wider issues.

The Board also had before it a letter from the European Commission requesting that the effective date of IFRIC 3 be deferred. The Board concluded that while IFRIC 3 is the appropriate interpretation of the existing requirements of IAS 37 and IAS 38, the 'accounting mismatch' problem suggests the need for a more comprehensive consideration of the issue. Pending that consideration, IFRIC 3 has been withdrawn.