
The Financial Accounting Standards Board (FASB) released a proposed Accounting Standards Update (ASU) on Dec. 17. This ASU is meant to improve the financial accounting for and disclosure of financial activities related to environmental credits and environmental credit obligations. Comments on the proposed ASU are due by April 15, 2025.
The changes are expected to offer investors added decision-useful information by improving the understandability of financial accounting and reporting information regarding environmental credits and environmental credit obligations, as well as the comparability of that information by limiting practice diversity.
In the FASB’s 2021 agenda consultation project and other outreach, stakeholders said that entities are more subject to added emission-related government mandates and regulatory compliance programs, which usually lead to obligations settled with environmental credits.
In addition, some entities voluntarily purchase environmental credits from third parties. Stakeholders also stated that generally accepted accounting principles (GAAP) do not offer specific authoritative guidance regarding recognizing and measuring this financial activity, leading to practice diversity.
The proposed ASU offers recognition, measurement, presentation and disclosure requirements for all entities that purchase or hold environmental credits or have a regulatory compliance obligation that might be settled with environmental credits.
The FASB’s mission is to create and enhance financial accounting and reporting standards, so the proposed ASU addresses only amounts reported in the financial statements. Given this, FASB and these proposed amendments do not address measuring or tracking an entity’s voluntary emissions initiatives or actual greenhouse gas emissions.