The IASB and FASB discussed the initial accounting issues in a cap and trade scheme. Specifically, the boards discussed the issues of recognition of allowances as assets, and the existence and recognition of liabilities when allowances are allocated.
A cap and trade scheme is one type of emission trading scheme. In a cap and trade scheme, an entity may receive an allowance from the scheme administrator for no monetary consideration. The Agenda Papers describe this as an allocation of allowances. The issues of whether allowances can be recognised as assets and whether a liability exists when an entity receives an allocation of allowances are critical issues in determining the accounting for a cap and trade scheme.
The FASB and the IASB tentatively decided that purchased and allocated allowances should be recognised as assets.
The boards tentatively decided that a liability exists when the allowances are allocated because the definition of a liability is met. The obligating event in this case is the allocation of allowances. The boards discussed the liability in the context of three views outlined in IASB Agenda Paper 10B, which was also issued as FASB Agenda Paper 6B. The IASB expressed support for the view that when an entity is allocated allowances, it has an obligation to comply with the scheme requirements: to refrain from emitting to keep the allowances, or to return them. However, Board members provided suggestions for refining the description of the view. Although the FASB decided that a liability exists upon the allocation of the allowances, the FASB did not have majority support for any of the views as described in the paper.
At future board meetings, the boards will discuss the issues of measurement and presentation (including netting) and whether a right to future allocations can be recognised as an asset.