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This ACCA report investigates how large corporate emitters in the European Union Emissions Trading System (EU ETS) are accounting for carbon credits.

Examining accounting approaches in this area is important because the financial implications arising from the EU ETS may be material in nature and amount. The value of carbon credits traded in this market is large: worth US$92 billion/€63 billion in 2008.

Key findings:

• A large proportion of surveyed companies (42%, or 11 of the 26 companies) treat emission allowances as intangible assets. 
• Of the companies surveyed, 31% (eight companies) are accounting for granted carbon allowances at nil value (on the basis that allowances are granted at no charge).
• Most of the companies are measuring their obligation to surrender allowances on a ‘cost with the balance at market value’ basis.
• Most of the companies do not disclose any information on amortisation/depreciation (69%, or 18 companies) or revaluation of emission allowances (50%, or 13 companies).
• Interviews with accountants confirmed that they find it difficult to account for emission allowances and revealed a guidance role for auditors in the absence of an international accounting standard.
   

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