Carbon Tax Query

Q: Are there any financial reporting considerations as a result of the Federal Government’s recent announcement of the new carbon pricing scheme?

A: As most readers are probably aware, the Federal Government announced the proposed implementation of a new carbon pricing scheme on 10 July 2011. The plan involves imposing a fixed price on carbon emissions for the first 3 years, commencing on 1 July 2012 followed by a flexible emissions trading scheme on 1 July 2015. While the biggest impacts will be felt on the 500 entities whose carbon emissions render them immediately liable to the new cost, other entities will be affected as their costs through the supply chain may rise. The first bills for the new plan were tabled in Parliament last week.

Set out below are the major financial reporting considerations members should be aware of in both the short and longer term.

Considerations for period end prior to any commencement date of the scheme

At this stage the short term financial reporting implications associated with the scheme for period ends prior to the commencement date of the scheme are limited and centre around:

1.     Asset impairment: the Federal Government’s announcement will give affected entities more certainty about the future impact of a carbon pricing scheme on the value of their assets. This may require the alteration of asset impairment testing models as at the relevant period end. The Government’s announcement would qualify as an adjustable post balance date event if the issue of a carbon pricing scheme had been considered in the models used to test impairment at your relevant period end. However, if the directors had determined at the period end that there was not sufficient certainty to factor a carbon pricing scheme into the impairment testing model the government’s announcement would be a non-adjusting event.

However, these effects may be limited given that the legislation has not yet passed through parliament, substantial government assistance packages are available in some industries and cost increases to customers may also be possible.

2.     Directors report disclosures: companies that are going to be substantially impacted should consider the need to disclose details in the “likely developments” section of their directors report based on their assessment of the likelihood the current carbon pricing scheme legislation will be enacted.

Longer term implications

Longer term the proposed carbon pricing scheme legislation is likely to generate additional recognition, measurement and disclosure issues as entities work within the new proposals. This will make it important to ensure that over the coming year the entity’s systems and processes are up to the task of coping with the new developments as they occur.

A project to develop comprehensive guidance on accounting for the rights and obligations inherent in an emissions trading schemes was being undertaken by the IASB however this has currently been suspended to allow the board to pursue its convergence agenda with FASB. With the FASB project nearing completion, the emissions project may be reactivated with future timing depending on the outcome of the agenda consultation process currently being undertaken by the IASB.

The Institute’s reporting and assurance team has collated onto our carbon resources webpage links to a range of resources that can assist members understand the plans and assess the impact on businesses with which they are involved.