Several inventory, current assets or elsewhere on the balance

Several governmental policies have been introduced to address the important matter of climate change.One such policy is the cap and trade system, a common tool used to address climate change. The programme allows businesses to buy and sell their emission allowances, if they have additional allowances in excess of their needs. Business are also able to accumulate unused allowances in subsequent years to meet regulation requirements. It is thought that the programme creates opportunities for businesses to obtain a cost-effective way to deal with their carbon emissions.

Unlike Australia, emission allowance holders in the European Union speculate that their excess emissions are useful for trading purposes in the open market working as a sort of future contract, swap, or derivative; due to the fact that prices is volatile1. Under IAS 38, the emission allowances held for sale by businesses are treated as inventory in relation to IAS 2.  In addition, under IAS 39, these emission credits are within the scope of financial instruments, then being valued at fair value with gains and losses recognized to the income statement.According to a PWC’s survey from 26 leading companies in EU2, two-thirds of such allowances were subsidized by the government at a price of zero, and not reported as income under IAS 20; the rest were recorded at fair value on the date of receipt and as revenue at the time of the compliance period.

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More than half of these businesses assigned allowances as intangible assets; others grouped them as inventory, current assets or elsewhere on the balance sheet; few classified as amortizes or depreciating assets2. Thus, it becomes a challenge for accountants to fulfil their accountability considering how these allowances are treated whether as a financial commodity or asset, also to recognize it in the accounts and reported in the financial statement.3According to SMH (20174), a survey found that a third of Australia’s biggest listed companies do not disclosure the potential risk of climate change to their business. In addition, The Australian Council for Superannuation Investors (ACSI) also suspected that in ASX 200 index, 70 companies did not participate in climate disclosure activities in 2016. It is clear then, that the non-financial information such as environmental information was precluded from the report.

This give difficulties in term of quantifying social and environmental cost to users. Thus, this issue is materiality. If it is omitted, then the problem becomes inaccuracy of figures, or non-disclosure and has potential to individually or collectively influence economic decisions of management or government. 1 Capoor, K., and P.

Ambrosi, 2009, State and Trends of the Carbon Market 2009, the World Bank, Washington, D. C. 2  PWC (2009) “Accounting for Emissions”. Link:

html Accessed on 29 Jan 2018 3 Bebbington, J. and Larrinaga-Gonzalez, C., 2008, ‘Carbon Trading: Accounting and Reporting Issues’, European Accounting Review, 17, 4: 697 – 717. 4 3 Yeates, C (2017) “ACSI says one in three ASX200 companies don’t disclose climate risks”. Link: Accessed on 29 Jan 2018