EFRAG Releases Draft Paper to Acquire Comments on the Emissions Trading Schemes

The EFRAG has released a draft paper containing comments that discusses the requirement for accounting guide on emission related trading schemes.

In the draft paper, the European Financial Reporting Advisory Group has highlighted Autorité des normes comptable’s initiative and noted that the France based standard setting authority revived the schemes related debate in the month of May in 2012, at the time when it released the paper pertaining to discussion. After the withdrawal of IFRIC 3 Emission Rights in the month of July in 2005 and the deferring of project in the year 2010, all the discussions pertaining to guidance on the matter have stopped and as a result divergent practices on the liabilities and assets accounting have arisen owing to participation in schemes pertaining to Emission Trading.

The draft letter issued by the EFRAG has used the discussion related paper released by ANC to analyze particular features of the schemes and also raise queries before the constituents, hoping that the comments that are received by the European Financial Reporting Advisory Group will assist in shaping the board’s recommendation to the International Accounting Standards Board on issuing a guidance on the rights pertaining to emissions. The EFRAG is of the opinion that the constituents should consider a debate on the schemes as they have an impact on several organizations, especially materially.

The European Financial Reporting Advisory Group is of the opinion that the manner in which an organization expects to utilize the emissions rights should be given a considerable thought. As per the scheme, a company that is not under the obligation of participating in the scheme can buy and trade rights. In addition to this, the rights that have been provided to the emitters for free can also be traded freely in the market. Thus, there is no legal restriction on the usage of allowances.

The EFRAG has also noted that the information that users require differs based on whether the emissions rights are being held for trading for benefitting from temporary price fluctuations or are they are being held so that they can be utilized in the process of production and be eventually surrendered before the authorities. While using the trading model, companies are trying to acquire maximum profit, using the compliance related model the entities are first looking at skipping penalties and then maintaining their cost of production.