AASB publishes staff paper on carbon accounting

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06 Jul 2012

The Australian Accounting Standards Board (AASB) has published a staff paper designed to assist constituents in identifying the key financial reporting issues that may arise for emitter entities during the fixed price phase of the Australian carbon pricing mechanism, and possible accounting treatments in respect of those issues under current Australian Accounting Standards.

Australia's carbon pricing mechanism came into effect on 1 July 2011.  The mechanism has two phases:

  • a fixed price phase in which permits (referred to in the law as 'carbon units') have a fixed price set by the Government, starting at $23 for the first year (2012-2013) and then increased in real terms annually by 2.5% until 2015
  • a flexible price phase in which permits can be traded under an emissions trading scheme (ETS), running from 1 July 2015 onwards. The ETS is a cap and trade scheme, where the Government sets the cap on emissions and supply and demand in the market determines the price of permits (subject to floor and ceiling prices).

The paper observes that in the fixed price phase, a carbon tax does not appear to raise any recognition, measurement, presentation or disclosure issues for emitter entities beyond those dealt with under current Australian Accounting Standards for other non-income taxes.

However, the paper notes the following in relation to the ETS phase:

The financial reporting implications of the flexible price phase will need to be considered by the AASB when the IASB progresses its project on accounting for ETSs. The AASB may also need to consider providing assistance under Australian Accounting Standards in regard to the flexible price phase, should it be established that the IASB will not be forthcoming with any necessary pronouncement or guidance in time to provide a basis for accounting treatments in the flexible price phase.

The paper focuses on the following topics/issues:

  • the nature and classification of permits
  • recognition of a liability for emissions
  • recognition of a liability on receipt of free permits
  • capitalisation or expensing of carbon tax
  • accounting for free permits in the Australian context
  • presentation of assets and liabilities
  • accounting for 'Australian Carbon Credit Units' (ACCUs)
  • impairment
  • accounting for shortfall charges
  • onerous contracts and existing provisions
  • the impact on income tax.

The AASB has stated that staff papers have no authoritative standing.  Click for access the the paper (link to AASB website).

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