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On June 12, FASB voted to move forward with drafting a proposed Accounting Standards Update for Accounting for Environmental Credit Programs. The proposed standard is intended to “improve the recognition, measurement, presentation, and disclosure requirements for participants in compliance and voluntary programs that result in the creation of environmental credits and for the nongovernmental creators of environmental credits.” Of course, this includes voluntary carbon markets and compliance credits. Highlights of the Board’s decision include:
Disclosure
“An entity would be required to disclose certain qualitative and accounting policy information about an entity’s involvement in ECPs, including the activities and events that give rise to environmental credit obligation (ECO) liabilities and the types of environmental credits owned by an entity. The Board also decided that an entity would be required to disclose the following at both annual periods and interim periods:
- Significant Environmental Credit Holdings
- Significant ECO Liabilities
- Other Amounts
- Cash paid for environmental credits acquired during the reporting period, regardless of whether those credits were recognized as assets.
- For an entity that provides a classified balance sheet, the current and noncurrent balances of compliance environmental credits, noncompliance environmental credits, the funded portion of ECO liabilities, and the unfunded portion of ECO liabilities.
- Sales of Environmental Credits
- Costs of Environmental Credits
The Board affirmed that disclosures in Topic 820, Fair Value Measurement, would be required for (1) noncompliance environmental credits remeasured to fair value in accordance with an entity’s accounting policy election and (2) unfunded ECO liabilities measured using the fair value of the environmental credits necessary to settle that liability.”
The disclosure requirements would be applicable to all entities, including public and private entities.
Timing
“an entity would be required to apply the new guidance retrospectively as if it had always been applied, and would adjust the opening balance of retained earnings (or other appropriate component of equity or net assets) as of the beginning of the annual reporting period that the new guidance is effective, subject to … additional requirements.”
There will be a 90-day comment period for the proposed Update.
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