EU accountants push for greener reporting

European body calls stronger global guidance on environmental issues, review of international standards

New international standards for corporate accounting contains too little guidance on environmental issues, the Federation of European Accountants (FEE) said this week. In a memorandum to the International Accounting Standards Committee (IASC), which issued a revised set of "core standards on international accounting" in January, FEE calls for more to be done to incorporate environment into mainstream financial reporting.

The IASC represents professional accountancy organisations in over 100 countries and develops a range of standards for corporate financial reporting. These cover all aspects of accounting, and FEE wants the environment to be much more closely integrated into them, particularly those related to liabilities and assets.

FEE has been lobbying for the IASC to undertake a broader environmental review of its work (ENDS Daily 26 February 1998). "It would be extremely timely, given the increasing importance attached to such issues in many countries," Johan Piet of Deloitte & Touche in the Netherlands, who chaired the FEE review, said. In the short term, however, he hopes that FEE's suggestions could be incorporated into some amendment or addition to the standards, before the next major revision.

In particular, FEE wants to see separate disclosure of environmental liabilities and costs where they are material to an enterprise. It says that this information should be disclosed in an easily comparable way, and enterprises operating in environmentally sensitive areas should have a stated policy on such issues. The treatment of environmental taxes should also be clarified, particularly the questions of whether they should be identified separately and/or treated as an operating cost.

One key recommendation relates to potential environmental costs: FEE wants the relevant standard, IAS 37, to fully acknowledge the difficulties in recognising and measuring provisions, because failure to disclose risks and uncertainties could lead to failure in providing for clean-up costs. "Environmental liabilities that are contingent on an uncertain future event [should be] recognised if it is probable that they will arise," FEE suggests.

The standard relating to the impairment of assets, IAS 36, should also address the problems specific to environmental factors, particularly how to determine the recoverable amount, uncertainties on timing, and possibility that contamination may migrate to adjacent sites, FEE says.

Property, plant and equipment bought to mitigate environmental damage should be treatable as a capital asset, even if it is unlikely to bring about an increase in future economic benefits, FEE adds. There is a need to clarify whether pollution permits and emission rights could qualify as intangible assets, and whether the disclosure of fines and penalties for environmental offences should be required. "Even if small in financial terms, they may have a significant effect on a company's public image," the federation points out.

Follow Up:
FEE, tel: +32 2 231 0555; {IASC}, tel: +44 171 353 0565.

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