FASB issues standard for clarifying environmental credit disclosures

FASB on Tuesday published an Accounting Standards Update (ASU) aimed at improving the financial accounting for and disclosure of activities related to environmental credits and environmental credit obligations.

“The new ASU adds guidance that will provide clarity around accounting and disclosures that previously did not exist in environmental credits and related credit obligations,” FASB Chair Richard Jones said in a news release. “It responds to stakeholders who expressed the need for increased understandability and comparability in this emerging area.”

According to the news release, Environmental Credits and Environmental Credit Obligations (Topic 818) provides recognition, measurement, presentation, and disclosure requirements for all entities that generate, purchase, or receive environmental credits or have a regulatory compliance obligation that may be settled with environmental credits.

The ASU is effective for public business entities for annual reporting periods (and interim periods within those annual periods) beginning after Dec. 15, 2027. For other entities, the effective date is Dec. 15, 2028. Early adoption is permitted.

The amendments:

• Define environmental credits and when they should be recognized as assets;
• Distinguish between compliance and noncompliance credits for subsequent measurement; and
• Require enhanced disclosures about how credits are obtained, used, and valued.

The amendments also define environmental credit obligations and clarify when entities must recognize environmental credit obligation liabilities arising from regulatory compliance programs, how to measure those liabilities, and what information must be disclosed about those obligations.

FASB’s mission, according to the news release, is to establish and improve financial accounting and reporting standards; therefore, the amendments are intended to address only amounts reported in financial statements. As a result, measuring or tracking an entity’s voluntary net-zero emissions initiatives or the entity’s actual greenhouse gas emissions are beyond the scope of FASB’s mission and are not addressed.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.