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Emission trading is carbon emissions trading that measures the green, carbon dioxide is calculated in tonnes of carbon dioxide equivalent or CO2-e greenhouse gas and it currently makes the volume of emissions trading. Emissions trading scheme is used to reduce the greenhouse gas and costs in equitable way that is incurring and expanding in national and international levels to obtain economic incentives for pollution control management. In the context of such scheme, participating entities will be reached though the emission obligation that is set by government. Sometimes emission trading is called cap and trade.
According to the (Green MPs, 2009) emissions trading can be effective and it has two main and important aspects that should be considered for the climate policy framework by putting price and a cap on carbon emissions. In the case of the carbon tax would be simpler, because it set the price and let the individual person to set or determine the reduced emissions. Environmental certainty provides the benefit to emissions trading, because the total allowed pollution is set by a cap then establishes the rules and let the price of pollution known by the market.
Explain the need for an accounting standard for carbon emissions (Kyoto protocol)
The first step headed toward for ascertain region emissions of carbon dioxide is the Kyoto Protocol. Australia now is compacting with issues that relate to carbon emissions trading to monitor the greenhouse gases from land based activities. The need for accounting standards is very important to be applied for carbon emissions (Kyoto protocol) because accounting make the financial reporting standards compatible as they are practicable and organise the future work programmes to ensure the compatibility is retained.
Briefly explain how this will impact on companies such as the increase in costs, inconvenience, different attitudes adopted by the community and clients etc.
Accounting for emissions trading can be used to minimise the waste and pollution in Australia but it is being a body that complex the accounting systems. As in Western Australia (department of treasury and finance, 2008) indicated that the tool Carbon Accounting Toolbox would be complex and difficult for landholders, and should be simplified if they would be using it for reporting purposes. Therefore, they can use alternative tools to Carbon Accounting Toolbox for carbon indication such as monitoring, reporting and measurement.
According to Australian standards and accounting theories , adapting new accounting standards for carbon emissions trading would have a significant impact in increasing the cost and facing difficulties of operating new system that would be applied to not only single companies but to the entire sector of the financial and financial markets company. Therefore, poor and privileged company would face inconveniences of applying and working with the new system, then should perhaps train all their employees the use of the system and require a financial assistance for a task.
Describe the advantages and disadvantages of carbon emissions trading accounting
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.'
Under legitimacy/stakeholder-ethical theory corporate social responsibility/ community assurance/ increase in customer confidence
5 Advantages (PAT, NAT)
Corporate social responsibility/community assurance/increase in customer confidence. (legitimacy)/stakeholder-ethical
Communicate with stakeholders (our south west. The sustainability challenge for business). http://www.oursouthwest.com/SusBus/challenge/challenge.htm stakeholder theory.
Better reputation/more competitive (stakeholder theory/ethical)
Minimise costs that are external to the organisation/take advantage of opportunities. Companies can be more aware of any environmental problems before they actually occur. This will reduce any legal costs from pollution/fines etc. (economic interest group theory).
Adds value to the organisation/reduces financial risk. (Institutional theory)
Comparability (institutional theory)
Free market approach v regulated market. Talk about regulation theory/public interest theory.
Carbon pollution reduction scheme
3 Disadvantages (PAT, NAT)
Lack of consistency (hard to estimate future carbon figures) carbon finance online) may 2007. /measurability. (Conceptual framework-normative accounting: relevance)
Increase in costs to implement, training employees, monitoring and controlling. Allocation of resources. (Pat theory: supports this disadvantage. Managers will find ways to try and get out of paying these costs. This will increase profitability in short term however will not benefit from long term advantages of incurring these costs.
Having too many accounting standards can be difficult and confusing to keep track of. (Economic interest group theory)
Beside the advantages of conducting new accounting standards for carbon emissions trading, disadvantages could result. Therefore, under conceptual framework that provide recognition and measurement rules within a 'coherent' and 'consistent' framework that is approached by normative accounting theory appeared a lack of consistency in the carbon emissions, therefore, (Australian Petroleum Production and Exploration Association, 2008) concluded that the growth of separate Australian Government, state and territory government policies and greenhouse in increasing the costs and uncertainty for Australian industry, including the upstream oil and gas industry.
On the other hand (Deegan, 2008) demonstrated that Positive accounting theory that is known as managers are driven by self-interest and behaved or acted in an opportunistic way to increase their wealth would be a disadvantage for introducing new accounting standards for carbon emissions trading. By implementing the new system increase in cost for monitoring, maintaining, controlling and allocation the resources the standards would be difficult and would take a time to the organisation to train employees and acknowledging them of the new system and the financial reports. However, managers that conduct positive accounting theory will find ways to try and get out of paying these costs. This will increase profitability in short term however will not for long term of incurring these costs therefore this will impact the new accounting standards for emissions trading.