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Asset Classification, Subsequent Measurement and Impairment Testing for Carbon Emission Trading

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  • Tharatee Mookdee
  • Sheila Bellamy

Abstract

With global efforts to combat climate change, accountants from participating entities worldwide need to report the economic value of carbon credits and related assets in carbon markets. However, the absence of formal accounting guidelines allows the selection of accounting practices and reporting methods based on individual judgment. Also, emitters are allowed to invest in carbon credit projects and trading. These circumstances have led to diversity in global accounting practices. As accounting is an international business language in a global business world, it is important to study emerging accounting practices for carbon emission trading. The main aim of this study is, therefore, to explore the accounting practices (asset classification, subsequent measurement and impairment testing) of carbon credit providers/traders. Sample companies from Australian mandatory and voluntary carbon markets were selected. The study was conducted using case-study methodology and in-depth interviews, supported by archival and secondary data. It was found that the preferred asset classification of carbon credits varies among case-site participants, according to specific market requirements and economic uncertainty. Valuation methods differ across sites due to internal operations and economic factors. Impairment testing requires reference price indices determined by the nature of assets and professionals.

Suggested Citation

  • Tharatee Mookdee & Sheila Bellamy, 2017. "Asset Classification, Subsequent Measurement and Impairment Testing for Carbon Emission Trading," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2017(3), pages 65-86.
    • Handle: RePEc:prg:jnlefa:v:2017:y:2017:i:3:id:188:p:65-86
    DOI: 10.18267/j.efaj.188
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    References listed on IDEAS

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    1. Peter Warwick & Chew Ng, 2012. "The ‘Cost’ of Climate Change: How Carbon Emissions Allowances are Accounted for Amongst European Union Companies," Australian Accounting Review, CPA Australia, vol. 22(1), pages 54-67, March.
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    More about this item

    Keywords

    Financial accounting; Emission trading; Emission rights; Accounting standards; EU ETS;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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