The boards discussed the accounting for emissions cap and trade schemes. The meeting focused on schemes with voluntary participation (voluntary schemes), which involve contracts between knowledgeable and willing parties.
The boards discussed the application to a voluntary scheme of the definitions of an asset and a liability in the FASB Concept Statements and in the IASB Framework. The boards focussed their discussion on two views as to when liabilities arise in such a scheme:
- View 1 is that an entity's actual emissions are the obligating event in a voluntary scheme. An entity does not incur a present obligation, and hence a liability, until it has emitted. Until emissions have occurred, the entity can take action that enables it to avoid delivering allowances.
- View 2 is that entering into the membership contract is the event that creates a liability (the obligating event). By signing the membership contract, the obligation to pay allowances is unconditional.
The staff did not ask the boards to make any decisions at this meeting, but did seek advice as to which view had the stronger initial support. Both boards indicated a preference for view 2.
The boards will discuss accounting models for emissions trading schemes (both voluntary and statutory) at a meeting in the first quarter of 2010.