FASB to Tackle Rule-Making on Accounting for Environmental

The U.S. accounting standard-setter will consider crafting rules for how companies should account for climate-related transactions, a key step to providing clarity for firms and investors on deals involving items such as renewable-energy credits and carbon offsets.

The Financial Accounting Standards Board on Wednesday said it would add the project to the technical agenda featuring its rule-making priorities, which might produce a new rule U.S. companies would need to follow. The board earlier this month added a project on accounting and disclosure for certain digital assets such as bitcoin and Ethereum to its agenda.

Carbon offsets are credits companies buy and count toward their targets to reduce greenhouse gas emissions. Renewable-energy credits are certificates regulators offer to energy providers when they deliver wind, solar or hydroelectric energy to a power grid.

So far, there aren’t specific accounting rules companies must follow when recording the purchase of renewable-energy credits and carbon offsets. Some companies expense the credits at the time of purchase, while others capitalize and write them off later.

The FASB’s move comes two months after the Securities and Exchange Commission proposed sweeping disclosure requirements around climate risk for U.S. public companies. The SEC’s proposal would compel companies to disclose how carbon offsets and renewable-energy credits play in their climate-related business strategies.

It isn’t clear whether FASB’s project will overlap with the plan of the U.S. securities regulator. The SEC on Wednesday proposed new requirements for investment funds that take into account environmental, social and corporate-governance factors.

The FASB in December asked its staff to start researching environmental credits. The board is evaluating its priority projects after a consultation that netted more than 500 letters from companies, investors, academics and other stakeholders.

Companies were particularly vocal in suggesting the FASB set rules around accounting for climate-related transactions because they expect them to become a more relevant part of their business.

Telecommunications company

Charter Communications Inc.

in a letter to the FASB last September said an accounting framework for climate-related deals would help it and other companies work toward becoming carbon neutral and enter into more such transactions.

“Uncertainty exists today on what GAAP accounting literature to apply,”

Kevin Howard,

Charter’s chief accounting officer and controller, said at the time, referring to U.S. generally accepted accounting principles. Charter on Wednesday didn’t respond to a request for comment on the FASB’s decision to add the environmental-credits project to its technical agenda.

“Preparers rightly are asking us to take a look at this area,” FASB board member Jim Kroeker said. “Auditors who want to enforce high-quality standards…are left with the same challenges we would be if we had to answer how to account for one of these programs.”

Write to Mark Maurer at [email protected]

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