The proposed ASU outlines recognition, measurement, presentation, and disclosure requirements for entities dealing with environmental credits. Credit: chayanuphol/Shutterstock.

The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update (ASU) for improving the financial accounting and disclosure of activities related to environmental credits and obligations.  

This update seeks to enhance the usefulness of financial information for investors by improving the clarity of accounting and reporting on environmental credits and obligations, as well as the comparability of such information by minimising inconsistencies in practice. 

Stakeholders have been encouraged to review and provide feedback on the proposed ASU by 15 April 2025.  

The proposal emerged from FASB’s 2021 agenda consultation and other outreach efforts, highlighting the increasing need for regulatory compliance related to emissions.  

This often leads to obligations settled with environmental credits, and some entities voluntarily purchase credits from third parties. 

Currently, generally accepted accounting principles lack specific guidance on recognising and measuring these financial activities, resulting in varied practices.  

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The proposed ASU outlines recognition, measurement, presentation, and disclosure requirements for entities dealing with environmental credits or regulatory compliance obligations. 

The FASB focuses on establishing and improving financial accounting standards, and this proposed ASU only applies to amounts reported in financial statements.  

It does not address measuring or tracking voluntary emissions initiatives or actual greenhouse gas emissions. 

Earlier this month, FASB also proposed an ASU to refine credit loss measurement for accounts receivable and contract assets for private companies and certain not-for-profit entities.  

This amendment introduces a practical expedient and an accounting policy election, developed in collaboration with the Private Company Council, to address challenges in applying Topic 326, Financial Instruments—Credit Losses. 

Last month, FASB issued an ASU to provide improved guidance on the induced conversion or settlement of convertible debt instruments, addressing the Accounting Standards Codification Subtopic 470-20, Debt—Debt with Conversion and Other Options.