This value on the date of receipt and as

This report points out the accounting issue
for climate change in general and global warming in particular.

One such policy is the cap and trade
system, Emission Trading Scheme, 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. Businesses are 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.

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Under Emission Trading Scheme, emission
allowance holders in the European Union speculate their excess emissions for
trading market as a sort of future contract, swap, or derivative; due to the
fact that prices is volatile. 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 EU, 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. 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.3 According 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 and lack of transparency. If it is omitted, then the problem
becomes inaccuracy of figures, or non-disclosure has potentially influence
economic decisions of management or government.