Search within this section
Select a section below and enter your search term, or to search all click Utilities and power companies
Favorited Content
21.6 Emission allowances
Publication date: 07 Feb 2023
us Utilities guide
21.6.1 Presentation
The financial statement presentation of emission allowances generally follows the nature of the reporting entity’s activities. Figure UP 21-1 summarizes considerations for the classification of emission allowances in the income statement and statement of cash flows.
Figure UP 21-1
Financial statement presentation of emission allowances
Financial statement presentation of emission allowances
Purpose for holding |
Balance sheet |
Income statement |
Statement of cash flows |
Held for use
|
Inventory
|
Cost of compliance is an operating expense; generally classified as part of operations and maintenance or, alternatively, within fuel expense.
Proceeds from sales of excess allowances should be classified as a contra-expense or other income.
|
Activity should be included in operating cash flows because cost of compliance is an operating expense.
|
Held for use
|
Intangible assets
|
Classification of amortization is the same as emission allowances held for use and classified as inventory.
|
Activity (i.e., purchases and sales of emission allowances) should be included in investing cash flows because amounts relate to an intangible asset.
The amortization of the intangible asset should be reported as a non-cash adjustment to operating cash flows.
|
Held for sale
|
Inventory
|
Sales should typically be classified as part of trading revenue.
|
Sales should be included in operating cash flows; the activity is in the normal course of business and part of operating income.
|
Held for use
|
Plant (existing emissions allowances)
|
Part of depreciation
|
Part of depreciation
|
Disclosure
U.S. GAAP does not include any specific disclosure requirements for emission allowances. However, utilities should provide appropriate disclosures based on how the emission allowances are classified (e.g., if allowances are classified as inventory, any required disclosures for inventory should be included in the financial statements). In addition, utilities should consider the applicability of other disclosures about emission allowances, including:
- Policy regarding whether emission allowances are treated as inventory or intangibles
- Early warning disclosures if there is a possibility of future impairments
- Accounting policy for the recognition of proceeds from the sale of emission allowances
- Gain or loss recognized in connection with vintage year swaps
- Contractual commitments related to the future purchase of emission allowances
For its compliance obligation, the reporting entity should disclose:
- Policy for accounting for its compliance obligation (if applicable)
- Any potential fines and penalties (within the contingencies footnote)
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
Link copied
