Date issued: 17 July 2007

CPA Australia has warned that, without immediate action, an emissions trading scheme could cause significant financial reporting and assurance issues.

With the potential for an emissions trading scheme to be implemented in Australia as early as 2010, CPA Australia has written to the Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB), urging immediate action.

Key issues highlighted by CPA Australia include:

• The risk of divergent financial reporting practices developing.
• The risk of an accounting mismatch of assets and liabilities occurring.
• The lack of an assurance framework for these types of engagements.

CPA Australia Chief Executive Geoff Rankin has called on the AASB to commence work immediately on developing new or amended accounting standards to enable organisations to properly account for emissions.

'Under the current standards, it’s not clear how organisations would account for emissions. This uncertainty is a significant issue, as it could pave the way for divergent financial reporting practices developing. For example, without new or revised standards in place, some organisations will show carbon credits as a net position, while others will show them as a gross position. This means that users of financials such as shareholders and analysts would be comparing apples and oranges, as the financials would not be comparable.'

'The interaction of an emissions scheme with accounting standards also has the potential to introduce accounting volatility into financial reports – a volatility caused by a mismatch of assets and liabilities that is not consistent with the underlying economic position of the organisation. This occurs when the accounting standards require the emissions permit to be measured at cost and the related liability at market value.'

'Standard-setters have a limited window of opportunity in which to act. Past experience has shown that reviewing or making new standards can be a lengthy process. Failure to act now could result in a scheme coming into place before these issues are adequately resolved. The result would be an unacceptable reduction in the quality of financial reports.'

Mr Rankin also called on the AUASB to develop and implement an assurance framework for emissions engagements.

'Before an emissions trading scheme can become operational in Australia, a workable assurance framework must be established. Given the impending timeline, action must be taken now, as time also has to be allowed for practitioners to be appropriately trained.'

'Without an appropriate framework and well-trained practitioners, the reliability of data will be seriously undermined, putting the scheme in jeopardy.'

Mr Rankin is calling on the standard-setters to work with their international counterparts, International Accounting Standards Board and the International Auditing and Assurance Standards Board as the Australian scheme will need to be accepted internationally.

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