Australian standard setter updates guidance on carbon accounting in light of IFRIC 21

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30 Jul 2013

The Australian Accounting Standards Board (AASB) has released an updated version of a staff paper on accounting for Australia's carbon pricing mechanism, specifically how to account for the 'fixed price' phase which is often referred to as a 'carbon tax'. The latest update of the paper discusses the implications of the release of AASB Interpretation 21 'Levies' (equivalent to IFRIC 21), and notes a number of interpretative issues surrounding the identification of the obligating event for the carbon tax.

The updated paper, entitled Possible Financial Reporting Implications of the Fixed Price Phase of the Carbon Pricing Mechanism for Emitter Entities, has had an appendix added which outlines the impacts of Interpretation 21 (equivalent to IFRIC 21), as were considered at the July 2013 meeting of the AASB.  (More information about the Australian carbon pricing mechanism, and staff paper, can be found in our articles from June 2012 and April 2013.)

The new appendix to the staff paper includes the following observations:

  • The AASB came to the tentative view that judgement would be required in determining how the threshold criterion included in the Interpretation would be applied in recognising carbon emission liabilities, at least in some circumstance
  • Interpretation 21 might be read as requiring a liability to be recognised when, and only when, the annual threshold level of emission specified in the legislation is met by a continuing entity, whereas prior to the issue of the Interpretation, the staff paper expressed the view that obligating event is the emitting of carbon and a liability is recognised when it is probable the annual threshold will be exceeded
  • The AASB also noted that how broadly the term ‘threshold’ is interpreted is a matter of judgement, and might conceivably be extended to thresholds for long service leave and pension entitlements (although the AASB considers this unlikely).

The AASB has written to the IFRS Interpretations Committee outlining some of these interpretative issues, which it considers are broader than the carbon pricing mechanism, and so could include other government imposts in the Australian and global contexts, such as payroll tax.

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