Cracks appear in carbon emissions accounting

Experts have voiced growing concern that businesses in the UK and abroad are still without a standardised method of accounting for carbon, despite impending policies forcing companies to begin reducing energy emissions.

The issue is made urgent by the looming introduction of the Carbon Reduction Commitment (CRC) in April 2010, which will compel the largest 5,000 companies in the UK to report and pay for carbon emissions produced from energy consumption.

Accountancy Age understands that a letter is being drafted by the accountancy institutes and the Big Four firms calling for the International Accounting Standards Board (IASB) to address the absence of a global policy on emissions reporting.

"The IASB needs to give standardisation to larger international companies such as Shell, BP, etc, who will be part of Emissions Trading Scheme and the CRC in the UK, as well as other [regulations] in other countries,” said Ben Wielgus, lead CRC and sustainability adviser at KPMG.

Alan McGill, PricewaterhouseCoopers partner in sustainable development and climate change, said: “We need an effective reporting system fit for purpose, fit for the 21st century.”

"It took 125 years over which financial accounting rules developed and filled gaps as businesses became more complex, we don’t have that sort of time when it comes to climate change. We don’t have 100 years to account for carbon.”

McGill's major concern is that multinational businesses now have to cope with more than 100 different national policies around the world on how to manage or reduce carbon emissions. And yet there is no standardised accounting method to bring the issue on to company balance sheets.

This also raises complex auditing issues. There is concern that auditors currently have no uniform understanding of how to consider carbon emission reporting.

“If one Big Four firm was to audit in one way and another in another way, there could be some real discrepancies,” Wielgus added.

There are high expectations of the IASB. Another Big Four partner said: “Institutes, accounting firms, regulators and investors were all waiting for the IASB to come up with an international accounting standard that would allow them to report on sustainability information in a comparable manner.”

The problem is that the IASB has been distracted by issues generated by the global recession and the credit crunch.

Richard Spencer of the ICAEW said the IASB’s position was “understandable” because it “had its hands full”. Other observers simply said the board was “overwhelmed” at the moment.

But Spencer added the biggest problem for the IASB was not just writing a standard, but winning global agreement on it.

A spokesman for the IASB said it intended to publish a draft proposal on accounting for the European Emissions Trading Scheme (ETS) towards the middle of next year. The ETS, which began in 2005, applies only to the largest manufacturers in Europe. The UK’s CRC policy will affect many more companies in Britain.

The IASB was unable to comment further on a general standard for carbon accounting before Accountancy Age went to press.

Further reading:

Give the IASB resources to set carbon guidelines