Diving Summary:
- The Financial Accounting Standards Board on Wednesday made a series of technically tentative decisions to further shape the new accounting standards for environmental credits it is developing, before voting 7-0 to see a draft of the rules up for public comment. . While the unanimous decision formally sets it on a path toward expected completion later this year, board members expressed divided opinions on some of the details of the guidance.
- Some members retreated before the Board decided to allow certain circumstances where companies can choose to assess the credits using the fair value method, instead of the historical cost accounting method that is anticipated that it is the most typical method used. The board last year approved new rules for cryptocurrencies that also used the fair value method. Some board members said the potentially opaque environmental credit market could raise similar concerns raised by the crypto youth market, where it would be difficult for companies to accurately determine the fair market value of an EC.
- "I felt some initial discomfort... partly because we had that discomfort when we talked about crypto," said board member Christine Botosan. However, she said staff explained that environmental credits were different from crypto credits because they have to be registered in some way. “So I think there are other checks and balances for the organization that might not exist in the cryptocurrency world,” she said.
Diving information:
FASB decided to add EC to your technical agenda in May 2022. That move was a change from 2019, when the board opted to address credits related to emissions trading and other environmental markets. Since then, environmental, social and governance issues have attracted increased attention from regulators, companies and investors.
Last year, the standard setter decided that its new standards would apply to a variety of forms: of credits to certificates, assignments and compensation - that provide enforceable rights to credit for reducing or eliminating pollution, such as carbon offset programs or renewable energy credits/certificates known as RECs, CFO Dive previously reported.
Exactly how it will affect companies and financial report preparers will depend on what the final rules look like after changes are made following the public comment period, logan kowcheckHe affirmed in an interview the audit director of the accounting company Schneider Downs.
Kowcheck's energy clients generating environmental credits, which would be among the most likely companies to be subject to the proposed new treatment, appear to largely accept it as a positive because the standards will provide accounting guidance where there currently is none. Still, he said he expects more changes to the new standard before it is finalized and noted that the full impact it will have on businesses subject to IT will depend on what the finished rule looks like. "The devil is in the details," he said.
For now, the disclosures that will be required in footnotes are among the elements of the proposed new rule that Kowcheck finds notable. "The requirement to disclose what the credits are in the [profit and loss statement]"...it is necessary for a reader of financial statements from a consistency and comparability point of view if evaluating different companies," he said. "But the compliance requirements could become onerous. This is something you're going to get a lot of feedback on."
