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

“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

“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

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

Related reading

Fiona Westwood of Smith and Williamson.