Challenges in Accounting for Carbon: Analysis of Accounting Policies of the World's Largest Polluters

Abstract

The study's focus was on examining the accounting policies related to carbon credits of the top 100 global GHG emitters, as mentioned by Kouloukoui et al. (2019). Of these 100, only 36 gave access to the CDP questionnaire. We used the model proposed by Lovell et al. (2010) to examine carbon credit accounting choices, employing content analysis with NVivo software and statistical analysis with Stata. The financial statements (FS) and explanatory notes of 247 companies from different countries and sectors, such as oil and gas, mining, coal, transport and marine logistics, and the chemical sector, were analyzed from 2015 to 2021. Finally, nine companies provided information on the accounting treatment for carbon credits. The results indicate a predominance of classification as inventories, followed by intangible assets, measurement at cost, and liabilities accounted for by the excess carbon credits owed about existing assets at market value. We observed significant heterogeneity in accounting policies, which remained over time. The lack of standardization and consistency in reporting methods and the concealment of accounting records in this context make it challenging to compare practices, compromising the evaluation of companies' performance, the decision-making of investors and other agents, and the transparency and accountability of this market. These findings highlight the need for a more coherent and rigorous approach to accounting for carbon credits, especially considering the urgent challenges of climate change.