|
The relevance of carbon accounting to financial accounting
Background
According to UNFCCC, “The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change. The Kyoto Protocol was adopted in Kyoto, Japan, on 11 December 1997 and entered into force on 16 February 2005.” “Under Kyoto Protocol, many industrialized nations made binding commitments to reduce greenhouse gas (GHG) emissions to 5.2 percent below their 1990 levels during the 2008-2012 timeframe” (Dutta & Lawson, 2008).
Redefining Progress-The Nature of Economics asserted, Carbon emissions accounting has played a very important role in international activity, as it is the way by which nations comply with the Kyoto Protocol. Besides, carbon accounting also is a means to better measure an organisation’s environmental impacts as well as opportunity costs related to the depletion of natural resources and the effects of pollution (Dutta & Lawson, 2008).
Having ratified the Kyoto Protocol, the EU adopted a cap-and-trade trading system by which carbon emission allowances are traded in free market (Dutta & Lawson, 2008). Carbon emission then becomes a financially material commodity which can be traded in the carbon market, so there is a stronger need to properly define, measure, account for, audit and report its value in the consistent way similar to the other physical commodities and financial instruments (Aldersgate Group, 2007).
The IASB issued IFRIC 3 on ‘Emission Rights’ in December 2004, but then it was withdrawn in June 2005. The main reason for withdrawal was the application of IFRIC 3 created measurement mismatches between assets (Emission Allowance) and liabilities (Provision for Emission) (NZICA, 2005). Though the IASB and the Financial Accounting Standards Board (FASB) have launched a joint project on carbon reporting and carbon emission accounting models, they have not published a conclusion so far (KPMG, 2008).
IASB (2010) noted that, following the withdrawal of IFRIC 3 on Emission Rights, there was a risk of various accounting practices for emission trade scheme that would weaken the comparability and usefulness of financial statements. ACCA (2009) also pointed out that, a number of different methodologies and approaches to measure and account for carbon emission are used by different disclosing companies because of no specific or common carbon reporting or accounting standards, so comparability of carbon disclosure among data setters is difficult. Besides, the current carbon reporting is made on a voluntary basis without uniform standards (Dutta & Lawson, 2008).
Consequently, many companies still are confused about the appropriate accounting treatment complying with both International Financial Reporting Standards (IFRS) and generally accepted accounting principles (GAAP). Therefore, accounting for GHG remains a challenge, in which market participants are going to wait for a clear guidance from accounting standards bodies (Deloitte, 2007). Though accounting standards bodies have not provided generally accepted protocols for carbon emission or emission trading, ISO launched ISO 14064 – greenhouse gases standard in 2002 and published it in 2006 as a solution to address the above problems (ISO, 2006).#p#分页标题#e#
ISO 14064 consists of three standards, as an integrated set of tools aimed at reducing GHG emission and guidance for quantifying, reporting, monitoring and verification of GHG (ISO, 2006). ISO 14064 is used by most companies to integrate a carbon reporting and accounting system into an annual report. ISO 14064 also is a guideline and a road map to help companies determining their carbon baseline, which drives a company to set up plans and strategies to address and lessen carbon output in order to meet the target (National Standards Authority of Ireland, 2010).
Objective
Research question
- To explore the relevance of carbon accounting to financial accounting; how carbon accounting is relevant to financial accounting (primary objective)
Research objectives
- To recognise the importance of carbon accounting towards today’s economic and social environment
- To understand the roles and possible obligations of standard-setter bodies and professional accountants in carbon accounting
- To recognise the issues and difficulties exist in carbon accounting and to research some approaches and ways forward to reduce and even solve these problems
Method
Primary research will be mostly used in this investigation. 1. Web research: I will read latest news about carbon emissions, carbon accounting and development trend of carbon accounting standards through website, which would drive me to think out more ideas and good points. Besides, several organizations’ websites are also very useful, which may set out the organisations’ attitudes towards carbon accounting. 2. Online databases, such as ProQuest, JSTOR, etc, will provide professional articles and journal articles are very helpful for me to search professional and peer reviewed ideas with respect to how carbon accounting is related to financial accounting, how carbon offset and carbon allowance are treated by organisations and etc. 3. Library having many sustainable accounting, carbon emission books, journals, and magazines also is a good way for me to gather necessary information.
Body report layout
1. Explanation of reasons and factors that generate carbon accounting and carbon emission market
2. Setting out the difficulties and issues in measurement and disclosure in carbon accounting and the limited guidance exists to be followed by organizations
3. Exploration of how carbon accounting is relevant to financial accounting as well as what are financial impacts of carbon accounting. (For example, whether carbon emissions allowances should be recognised as assets).
4. Exploration whether there are any accounting standards developed for carbon accounting. If such standards exist, my project will test whether such standards can be improved; if such accounting standards do not exist, then my investigation may question if they are needed
5. Recommendations on the increasing roles of accounting professions and standard bodies and the development trends of carbon accounting standards#p#分页标题#e#
Reference
ACCA. (2009). Discussion paper: carbon accounting: too little too late? Retrieved on March 8, 2010, from http://www.accaglobal.com/pubs/general/activities/library/sustainability/sus_pubs/tech-tp-tlt.pdf
Aldersgate Group. (2007). Carbon costs: corporate carbon accounting and reporting. Retrieved on March 10, 2010, from www.aldersgategroup.org.uk/public_reports/view_document/3 www.ukassignment.org
Deloitte. (2007). Accounting for Emission Rights. Retrieved on 30 May, from http://www.deloitte.com/assets/Dcom-Australia/Local%20Assets/Documents/Deloitte_Accounting_Emissionright_Feb07.pdf
Dutta, S. & Lawson, R. (2008). Broadening value chain analysis for environmental factors. Retrieved on March 12, 2010, from http://www.imanet.org.cn/userfiles/file/%E7%A2%B3%E6%8E%92%E6%94%BE%E6%88%90%E6%9C%AC%E7%9A%84%E6%89%A9%E5%B1%95%E4%BB%B7%E5%80%BC%E5%88%86%E6%9E%90%EF%BC%88%E8%8B%B1%E6%96%87%E7%89%88%EF%BC%89.pdf
IASB. (2010). Emissions Trading Schemes. Retrieved on 29 May, from http://www.iasb.org/NR/rdonlyres/D0D0B44A-254A-4112-9FCE-34178B236D07/0/ProjectUpdateEmission022008.pdf
ISO. (2006). New ISO 14064 standards provide tools for assessing and supporting greenhouse gas reduction and emissions trading. Retrieved on 27 May, from http://www.iso.org/iso/pressrelease.htm?refid=Ref994
KPMG. (2008). Accounting for carbon: the impact of carbon trading on financial statements. Retrieved on 27 May, from http://www.kpmg.com/BE/en/IssuesAndInsights/ArticlesPublications/Pages/Accounting_for_carbon.aspx
National Standards Authority of Ireland. (2010). Carbon Accounting and ISO 14064: Getting ready for cap and trade. Retrieved on 27 May, from http://www.qualitydigest.com/inside/quality-insider-article/carbon-accounting-and-iso-14064.html
NZICA. (2005). Submission by the Financial Reporting Standards Board of the New Zealand Institute of Chartered Accountants to the Accounting Standards Review Board for approval of Withdrawal of the New Zealand Equivalent to IFRIC Interpretation 3 Emission Rights. Retrieved on 29 May, from http://www.nzica.com/AM/Template.cfm?Section=Financial_Reporting_Standards_files&Template=/CM/ContentDisplay.cfm&ContentID=3426#p#分页标题#e#
Redefining Progress-The Nature of Economics. Carbon Accounting. Retrieved on April 12, 2010, from http://www.rprogress.org/energyfootprint/carbon_accounting/
UNFCCC. Kyoto Protocol. Retrieved on April 12, 2010, from http://unfccc.int/kyoto_protocol/items/2830.php
|
