The purpose of this agenda item was for the Board to consider whether to add a project to its technical agenda to provide guidance on how to account for emission trading schemes as, in the staff's view, divergence is likely to result. Based on the IFRIC's work and the Board's discussions to date, the staff suggested that there are four fundamental issues to be addressed:

• 1. Are allowances/credits assets? If so:
• 2. What is the corresponding entry for an entity that receives allowances from government free of charge?
• 3. How should allowances/credits be accounted for? These three issues then raise a fourth issue:
• 4. How should the effects of changes in the assets and liabilities arising from an emission trading scheme be reported in profit or loss?

The Board agreed that the emission rights issue has to be resolved and discussed the alternative ways to address this issue. It was noted that IAS 20 is already on the IASB agenda but had not been progressing fast enough due to staff resource constraints. Based on current information, it was indicated that resources may become available in January 2006 to work on the IAS 20 project.

The Board reasoned that, as emission rights are a form of government grants, it would be logical to address the broader IAS 20 project and in so doing, address the emission rights issues. The Board was concerned by current perceptions that it would address the emission rights issues first, and in so doing address the IAS 20 project, whereas the Board intends to approach this from the opposite end.