Some companies may purchase carbon credits to sell on to third parties – e.g. to polluting companies that require carbon credits to offset their emissions.
To determine the appropriate accounting for the purchase and sale of carbon credits, intermediaries need to consider whether they:
- act as a commodity broker-trader;
- act as a principal or an agent under IFRS 15 when selling credits or providing offsetting services; and
- need to account for the purchase or sale of a non-financial item (i.e. carbon credits) as a financial instrument under IFRS 9.
If a company acts as a commodity broker-trader and measures its inventories at fair value less costs to sell, then the measurement requirements of IAS 2 do not apply.
In our view, carbon credits and emissions allowances may be classified as commodities. ‘Commodities’ are not defined in IFRS® Accounting Standards and a carbon credit or an emissions allowance is not a financial asset. This means that there is no definitional restriction on classifying carbon credits or emissions allowances as commodities. We believe that if such assets are held as a commodity for resale and measured at fair value less costs to sell, then the measurement requirements of IAS 2 do not apply. [IAS 38.3(a), 2.3(b), 5]
This page references specific IFRS® Accounting Standards – see our glossary for the full list of standards.
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