Lack of consistency in carbon accounting – IETA, PwC

17 May, 2007
Companies are employing a variety of different accounting practices for carbon emissions in the absence of clear international guidance on the issue, according to a survey by PricewaterhouseCoopers (PwC) and the International Emissions Trading Association (IETA).
The survey* found that companies covered by the EU Emissions Trading Scheme (ETS) had applied 15 distinctive approaches when accounting for EU allowances (EUAs), although there were six main approaches.
Such diversity in accounting practice led to companies with similar emissions profiles providing very different results on the balance sheet, said Richard French, a senior manager in the energy and utilities assurance practice at PwC in London.
One respondent said: “It is difficult to compare the business performance ... when accounting treatments are not clear or vary so greatly.”In some cases, different accounting policies were employed by different business units within the same companies, said French.
“There is a widespread feeling that the EU ETS has made great progress, but that the pace of change has not always been matched by its infrastructure,” said Andrei Marcu, president of IETA. “Carbon financial accounting is a case in point. The industry is plagued with a diversity of accounting and no uniform approach seems to be in sight.”
It is a similar story when companies account for certified emission reductions (CERs) from Clean Development Mechanism projects, the survey found. However, here it found that only two main approaches for CERs were being employed.
The London-based International Accounting Standards Board (IASB) had proposed guidance on accounting for emissions – known as IFRIC 3 – in 2004. But this was later withdrawn as it created a mismatch between assets and liabilities, and a mismatch in the location of where gains and losses on emissions assets would be reported.
In March, the US-based Financial Accounting Standards Board (FASB) said it was considering what accounting guidance to give companies involved in emissions trading schemes (see Carbon Finance, March 2007, E-mail update).
* Trouble entry accounting: Uncertainty in accounting for the EU Emissions Trading Scheme and Certified Emission Reductions, PwC and IETA, www.pwc.com