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Emissions Trading is one of the proposed solutions for some of the environmental issues confronting the globe. The impact of potential legislation for Carbon Trading on Australian Business now needs to be understood by the Board. Your task is to prepare Essay Example

Carbon trading is an important contribution to the world based on legislations and policies that have been formulated but the idea of carbon trading has faced numerous challenges. A number of bodies rejected carbon trading in Australia. This was a project introduced in 2010 as one of the policies to deal with the issue of climate change. The introduction of the policy came in during a sensitive time because of the political hindrances (Department of Climate Change and Energy Efficiency, 2011). The coalition government introduced the policy in Australia but many stakeholders did not embrace the idea. In addition, a number of scholars and scientists criticized the whole idea. The opposition party on the other hand made its own proposal but was not supported by most of the stakeholders and thus the idea was shelved. The main reason for the opposition to the policy was that the financial and economic impacts of the policies were huge. This led to the delay in the implementation of the policy in the country.

Carbon trading aims at reducing the impact of business contributions towards depletion of the environment. Carbon trading ensures that companies and businesses are aware of their contributions and their contribution towards climate change affects their accounting activities (Scarlett, 2009). Organizational management is supposed to understand that impact of carbon trading towards their daily activities and on their financial reporting (National Academies Press, 2011). The basic idea of carbon trading is to limit the amount of carbon dioxide that can be released to the environment based on set standards and conditions. This means that those companies that produces less carbon dioxide, they can trade the remaining allowances (unused allowance) while those who have exceeded their limits can purchase extra allowances or face penalties based on policies in place.

Even though businesses will be given the allowances based on individual energy consumption, the entire process will have financial value and thus must be reflected on the balance sheet. This means that business will experience fluctuations on profits until a time where standardized accounting strategies based on carbon trading are in place (Schaltegger and Burritt, 2000). Thus, accounting approaches that may result may lead to counter-intuitive or volatility effects on the financial statements such as timing of recognition of profits, liabilities, assets and losses, balance sheet measurement strategies such as fair or cost value, or and nominal value. Other impacts include deferred and current tax, implications of VAT, and disclosure and presentation.

Some of the major players within the carbon trading business include emitters, creators, aggregators, and investors or consultants (Sullivan, 2008). These stakeholders play a major role when dealing with financial reporting on carbon trading even though there is no standard accounting strategy. Guidance for any accounting legislation is based on International Financial Reporting Standard (IFRS), but the legislation does not factor carbon trading. This means that Australia organizations, and organizations across the world have no defined way of accounting for carbon trading.

Generally, the idea of carbon trading to a business environment that has no clearly defined policies and legislations on accounting system posses numerous issues. Its effect on financial reporting should be understood in advance to provide means in which complications and threats can be addressed.

References

Department of Climate Change and Energy Efficiency. 2011. Tackling the challenge of climate change. Available at http://www.climatechange.gov.au/ [Accessed 13 May 2011]

Scarlett, R. 2009. CIMA Official Learning System — Performance Operations, 6th Ed. London: Butterworth-Heinemann.

Schaltegger, S., and Burritt, R. 2000. Contemporary environmental accounting: issues, concepts, and practice. London: Greenleaf Pub. Ltd.

Sullivan, R. 2008. Corporate Responses to Climate Change: Achieving Emissions Reductions Through Regulation, Self-Regulation and Economic Incentives. London: Greenleaf Pub. Ltd.

National Academies Press. 2011. Informing an Effective Response to Climate Change. Sydney: National Academies Press