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Emissions trading schemes

Date recorded:

The staffs of the IASB and FASB continued their previous discussions on the accounting for emissions trading schemes with both Boards. At the March 2009 meeting, the IASB had tentatively decided that an entity should recognise allocated allowances in a cap and trade scheme as assets. The FASB also discussed these issues at their April 2009 meeting but made no tentative decisions.

The staffs presented why allowances granted by a scheme administrator meet the definition of assets under the conceptual framework of each Board. The FASB agreed with the IASB's previous decision that allocated allowances are assets.

The staffs then discussed the question of whether a corresponding liability exists and is recognised when an entity receives an allocation of allowances from the scheme administrator. The staffs presented the Boards with two views:

  • View 1 - The allocation creates a present obligation and there is a liability for the allocation.
  • View 2 - The allocation is not a present obligation and thus no liability exists until the entity emits.

The staffs further disaggregated View 1 into three alternative views on what the present obligation is:

  • View 1(a) - an obligation to refrain from emitting to keep the allowances,
  • View 1(b) - an obligation to return the allowances (if the entity emits), or
  • View 1(c) - an obligation to comply with the scheme requirements, to refrain from emitting to keep the allowances or to return the allowances.

The staffs were of the view that the allocation does create a present obligation but had split views between whether there was an obligation to refrain from emitting or whether there was an obligation to comply with the scheme requirements by refraining from emitting.

The FASB was overall in view 1 although they differed in the reasoning with one Board member preferring view 1(b), one preferring view 1(c) and another not expressing a specific subview. However, one of the FASB Board members mentioned that he was not of view 1(a) or 1(c) and would therefore be somewhere between view 1(b) and view 2.

One IASB Board member mentioned that he felt the substance of the transaction was akin to the government grant standard which requires recognition of an asset and an obligation to perform under that asset. The rest of the IASB Board members agreed that there was an obligation supporting either view 1c or the analogy to the government grant accounting requirements. One IASB Board member asked the staff if there were subsequent ramifications contingent on what subview of view 1 was concluded. The staff mentioned that during the future discussions on measurement the rational for the liability recognition may have the potential to impact the measurement determination.

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