ESG projects’ accounting rules are set to shift soon.

TLDR:

In June 2024, the Financial Accounting Standards Board (FASB) approved Accounting for Environmental Credit Programs (AECP) to provide accounting guidance for environmental projects like carbon dioxide offsets. Companies will be required to follow one model for marking down projects and recognize environmental credits when settling obligations. The guidelines are aimed at reducing “greenwashing” practices by corporations. Additionally, the Public Company Accounting Oversight Board (PCAOB) updated two of its accounting standards to clarify the use of technology-assisted analysis in auditing.

Key Elements:

• FASB approved Accounting for Environmental Credit Programs in June 2024 to provide guidance for environmental projects like carbon dioxide offsets.
• Companies will be required to follow one model for marking down projects and recognize environmental credits when settling obligations.
• PCAOB updated two accounting standards to clarify the use of technology-assisted analysis in auditing.
• The guidelines aim to reduce “greenwashing” practices by corporations.

In June 2024, the Financial Accounting Standards Board (FASB) unanimously approved Accounting for Environmental Credit Programs (AECP) to provide accounting guidance for environmental projects like carbon dioxide offsets. The guidelines aim to address widespread “greenwashing” practices by corporations, particularly in the oil and natural gas sector. Companies will be required to follow one model for marking down projects like carbon dioxide offsets, cap-and-trade programs, renewable energy certificates, and greenhouse gas allowances. The FASB is accepting comments on the guidelines, which are expected to become part of Generally Accepted Accounting Principles used by the Securities and Exchange Commission.

Additionally, the Public Company Accounting Oversight Board (PCAOB) updated two accounting standards governing technology-assisted analysis in auditing. The updates clarify the use of tech tools for analyzing transactions and balances, as well as auditor responses to the risks of material misstatement. Accountants raised concerns about unclear regulations on tech tools in audits, prompting the PCAOB to provide guidance on the responsible use of technology-assisted analysis. The guidelines aim to improve audit efficiency and accuracy while ensuring that analyses are conducted responsibly and appropriately.

Overall, the approval of the AECP guidelines and the updates to the PCAOB accounting standards are significant developments in the accounting and auditing industry. Companies will need to adjust their accounting practices to comply with the new guidelines, while auditors will have clearer guidance on the use of technology in auditing processes. These changes are expected to drive greater transparency and accountability in financial reporting, ultimately benefiting investors, stakeholders, and the public.