With no IFRS Accounting Standard dedicated to accounting for carbon-related instruments, a new global study by ACCA (the Association of Chartered Certified Accountants)and the Adam Smith Business School at the University of Glasgow reveals the growing complexity and diversity in how companies account for these instruments, and the consequences for various stakeholders in the corporate reporting ecosystem. The study, Reality of accounting for carbon-related instruments, analyses the annual reports of 300 companies in high-emitting sectors across the globe.
“Without guidance from standard setters, companies are developing their own accounting policies and providing information based on their own discretion. While the application of judgement when applying accounting policies is welcome, the use of substantially different accounting policies and different terms to describe these instruments, undermines transparency and comparability,” said Dr Ioannis Tsalavoutas, professor of accounting at the University of Glasgow.
ACCA supplements the research report with two articles giving both decision-makers and finance teams practical insights about the drivers for and implications of engaging with these instruments, plus a practical workflow that is based on existing IFRS Accounting Standards. The articles also reveal the real-world implications for employees, customers and investors navigating ESG claims, tax uncertainties and reputational pressures.
“Good quality information about carbon-related instruments would benefit a broad spectrum of stakeholders in the corporate reporting ecosystem,” said Aaron Saw, head of corporate reporting insights – financial at ACCA. “Our research provides a glimpse into the complex landscape and offers a starting point for purpose-driven accounting and reporting of carbon-related instruments.”
The world needs a future-ready standard for a growing challenge
The lack of a global accounting standard for carbon-related instruments is already creating challenges for investors and companies alike. This study urges the creation of a global accounting standard for carbon-related instruments to enable consistent accounting treatments and disclosure of relevant information. The standard should help companies determine:
- the appropriate scope when accounting for each carbon-related instrument that faithfully represents its nature, function and intended use
- when and how to recognise the instrument
- the appropriate measurement approaches, and
- relevant disclosures to enable users to evaluate the financial effects of such an instrument on the company, including its nature, function and intended use.
Introducing an overarching term, such as “carbon-related instruments”, would help to harmonise description across markets.
ACCA urges finance professionals, regulators, and standard-setters to explore the research report and articles and contribute to shaping the future of accounting for and reporting of carbon-related instruments. By aligning practice with purpose, we can build clarity, consistency and trust in the carbon markets.
