Financial Information Analysis about Carbon Emission Disclosures

Running Head: ADVANCED ACCOUNTING ASSIGNMENT
ADVANCED ACCOUNTING ASSIGNMENT
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer to Question 4.................................................................................................................2
Financial Information Analysis about Carbon Emission Disclosures................................2
Answer to 4.1.........................................................................................................................4
Accounting Measurement Consistency..............................................................................4
Answer to 4.2.........................................................................................................................4
Comparison of European Companies with Australian Listed Companies.........................4
Answer to Question 5.................................................................................................................6
Findings from Analysis......................................................................................................6
Reference....................................................................................................................................8

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Answer to Question 4
Financial Information Analysis about Carbon Emission Disclosures
The current situation of the business situations makes stakeholders of the company
observe the performance, from not from only financial performance perspective but also from
the non-financial perspective. The stakeholder possesses or controls the abilities for
influencing the consumption of the economic resources of the company (Griffin, Lont and
Sun 2017). Therefore, company makes carbon emission disclosures in the financial statement
for demonstrating that how much they are concerned as well as responsible for it. However,
this disclosure is not mandatory but it is voluntary. Moreover, the trend is increasing as
voluntary disclosures made by the companies are improving the quality of financial statement
so that the potential investor can invest in the company (Aph.gov.au. 2019). Following are
the financial information disclosures about carbon emission allowances from EU ETS
participating companies:
Outokumpu Oyj
Outokumpu Oyz is the international group of companies, whose headquarter is in
Finland. It is the largest stainless steel producer in Europe as well as America. The companies
have seven active sites, operating under ETS EU. During 2018, pre verified carbon-dioxide
emission was around 1.0 million tonnes ETS. Moreover, Outokumpu applied free emission
allowance according to efficiency based benchmarks and historical activity, during 2013-
2020. The company manages emission allowance with the objective of securing and
optimizing cost of compliance for current trading period. The power market price is based on
partially based on the price of carbon emission because of the fact that the processes of
energy intensive uses fuels and power. Hence, indirect exposure to emission price is desirable
for company (Outokumpu.com. 2019).

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The allowance of emission considered to be intangible asset, which is measured at
cost. Further, the recognition of allowance received free of charge is at nominal value, which
is at zero carrying amount. Further, the recognition of the provisions to cover obligations to
return emission allowance is at fair value during end of financial period; when group held
emission allowance do not cover the actual emission. The recognition of obligation to deliver
allowances equal to emission is at the other operating expenses. in addition, the recognition
of gains from allowance sale is under other operating income in the profit and loss account
(Outokumpu.com. 2019).
ArcelorMittal SA
ArcelorMittal is multinational company engaged in steel manufacturing, whose
headquarter is in Luxembourg City. All across the world, ArcelorMittal is leading integrated
company in steel and mining. During 2006, ArcelorMittal was formed after takeover of
Arcelor by the Mittal Steel. After establishing the schemes for the trading emission
allowance, company entered itself in some derivatives types for implementing policy of
management for association of risk. The emission rights allocation of company is on-charge
basis, which pursue to annual national allocation plan, which is being recorded at the nil
value as well as rights of purchased emission are recorded at the cost. During, 2017-2018,
ArcelorMittal was having net notional position at 484, net negative value at 37, net positive
fair value at 317 and net notional portion at 1,170 (Corporate.arcelormittal.com. 2019).
Salzgitter AG
Salzgitter AG is European largest steel producer that is based on German. It is
engaged in processing, production and globalized trading of tubular products and rolled steel.
The company reports rights for emitting carbon dioxide under intangible assets, in case, if
there is intention t use emission rights for production purposes. Further, initial emission rights

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ownership that was acquired gratuitously is recorded at acquisition cost (Salzgitter-ag.com.
2019).
Acerinox SA
Acerinox SA is one of the major producers of steel across the world that is based in
Spain. Further, Acerinox was founded in the year 1970 and it got initial technical support
from Nissin Steel, which is Japanese company. The company recognizes emission of carbon
dioxide as the inventory. There is no specification of IFRS regarding specific way to classify
allowance of emission. Hence, Acerinox SA opted to harmonize two policies by adopting
same criteria for classifying individual and consolidated accounts. The measurement of
carbon dioxide emission allowance is at cost of acquisition. Further, the acquisition of
allowance at free of charge under the National Allocation Plan is initially measured at market
value at the date of receiving (Acerinox.com. 2019).
Answer to 4.1
Accounting Measurement Consistency
The consistency can be found between all the four European international companies
in the accounting measurement of the allowance of carbon emission. The reason for this is the
fact that all European companies allocates rights of the emission based on the on-charges that
is pursuant to annual allocation plan and recorded at the nil value. Further, consistency is also
found in recognition of allowances or rights of carbon emissions at cost of acquisition cost
(Black 2013).
Answer to 4.2
Comparison of European Companies with Australian Listed Companies
Boral Limited

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Boral Limited is the Australian multinational company that is engaged in
manufacturing as well as supplying if the materials that are used n building and the
constructions. It has its extensive operations in United States as well as Asia, with the sales
worth $4.39 billion. Further, the impacts of the climate as well the transitions to the lower
economy affect the company’s operations, supply chains as well as customers. The company
recognizes that as the global manufacturer of the building as well as construction of products,
they are emitter of the carbon through the operations of the clinker manufacturing operations
in the Australia that accounts for 49% of the total 2.6 million tonnes of emissions. In
addition, company has reduced scope I and scope II greenhouse gas emissions by the level of
27%. It is done by the help of activity realigning the company’s portfolio toward light
weighted products as well as less carbon-intensive businesses, more efficient and modern
operations in the Asia, alternative fuels programs, investing in the energy efficiency and
reduction of clinker manufacturing in the Australia in the favor of imports from the larger
scale (Boral.com. 2019)
Rio Tinto Group
Rio Tinto is Australian based company, which is listed in Australian Stock
Exchanges. It is one of the leading mining groups, which is engaged in exploring, mining and
processing the mineral resources of the earth. According to UK Company’s Act 2006 as well
as Regulation 2013, the green gas emissions for managed operations are being reported by
the company. The indirect emission, which are associated with transportation and uses of
products are excluded. The scope I emission includes emissions from fuel combustion and
managed facilities operations. Further, scope II emission is consists of emissions from the
steam, electricity and heat purchases. The greenhouse gas intensity index is prepared by Rio
Tinto that is consists of approximately 98% of the total emission from managed operations
(Riotinto.com. 2019).

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BHP Billiton
BHP Billiton is ASX listed company, based in Australia. It is one of the prominent
resources and mining companies across the world. It was formed in the year 2001 that was
the result of BHP global natural resources company and Billiton South Africans mining
company merger. BHP Billiton has made the disclosure of carbon emission, which includes
scope 1 as well as scope 2 of operational emissions. The calculation of which is based on
operation control basis that is in accordance with the GHG protocol corporate accounting as
well as reporting standard for reported financial year. Further, UK Company’s act 20016 has
the requirement for organizations to be practicable for acquiring relevant information on the
annual quantity of Group’s greenhouse gas emission, which is reported in tonnes of
equivalent carbon dioxide (Bhp.com. 2019).
Accelerate Resources Limited
Accelerate Resources Limited is the company based in Australia. This company was
incorporated during 2017 in Western Australia, with the objective for pursuing various
opportunities for investment in resources sector. However, the company does not make
disclosure of accounting treatment of carbon emission rights or allowance in their financial
reports (Ax8.com.au. 2019).
Answer to Question 5
Findings from Analysis
Therefore, findings reveal that companies, which are affected by ETS, increasingly
making an effort for the application of practices of carbon emission disclosures as well as
carbon emission financial accounting. In the current business scenario, ETS plays major role
in emission reduction of the company. There may be accounting implication that might be in
nature material and might be in financial amount forms. Hence, research on this enables

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business organization for doing financial accounting under the ETS regarding impact of
pricing the carbon (Black 2013). This helps the firm to provide useful information to
stakeholders, financial report preparers, accountant, government, investors, researchers and
many other users. Moreover, lack of uniformity, consistency as well as transparency in
carbon emission financial and disclosures practices of carbon emission of most of ETS
affected companies’ leads towards major difficulties for investors and other stakeholders for
enhancing comparability of financial statement information and carbon related information
(Climate Action - European Commission. 2016). Therefore, institutional pressures acts as
determinants of the carbon financial accounting practices and carbon emission disclosures
levels of ETS affected companies. Lastly, after comparison of both the countries that is
Europe and Australia organizations, it is suggested that institutional pressures determines
practices of carbon financial accounting and carbon disclosures extent (de Aguiar 2018).

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Reference
Acerinox.com. 2019. [online] Available at:
https://www.acerinox.com/opencms901/export/sites/acerinox/.content/galerias/galeria-
descargas/junta-general/Annual-Report-2018.pdf [Accessed 3 Oct. 2019].
Aph.gov.au. 2019. Emissions trading schemes around the world – Parliament of Australia .
[online] Available at:
https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/
Parliamentary_Library/pubs/BN/2012-2013/EmissionsTradingSchemes [Accessed 3 Oct.
2019].
Ax8.com.au. 2019. [online] Available at:
http://www.ax8.com.au/site/PDF/1223_1/AnnualReporttoshareholders [Accessed 3 Oct.
2019].
Bhp.com. 2019. [online] Available at:
https://www.bhp.com/-/media/documents/investors/annual-reports/2018/
bhpannualreport2018.pdf [Accessed 3 Oct. 2019].
Black, C.M., 2013. Accounting for carbon emission allowances in the European Union: In
search of consistency. Accounting in Europe, 10(2), pp.223-239.
Boral.com. 2019. [online] Available at:
https://www.boral.com/sites/corporate/files/media/field_document/Boral-Annual-Report-
2018.pdf [Accessed 3 Oct. 2019].
Climate Action - European Commission. 2016. EU Emissions Trading System (EU ETS) -
Climate Action - European Commission. [online] Available at:
https://ec.europa.eu/clima/policies/ets_en [Accessed 3 Oct. 2019].

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Corporate.arcelormittal.com. 2019. [online] Available at:
https://corporate.arcelormittal.com/~/media/Files/A/ArcelorMittal/investors/annual-reports/
2018/annual-report-2018.pdf [Accessed 3 Oct. 2019].
de Aguiar, T.R., 2018. Turning accounting for emissions rights inside out as well as upside
down. Environment and Planning C: Politics and Space, 36(1), pp.139-159.
Griffin, P.A., Lont, D.H. and Sun, E.Y., 2017. The relevance to investors of greenhouse gas
emission disclosures. Contemporary Accounting Research, 34(2), pp.1265-1297.
Outokumpu.com. 2019. Outokumpu s Annual report 2018 published | Outokumpu. [online]
Available at: https://www.outokumpu.com/news/2019/outokumpu-s-annual-report-2018-
published [Accessed 3 Oct. 2019].
Riotinto.com. 2019. [online] Available at:
http://www.riotinto.com/documents/RT_2018_annual_report.pdf [Accessed 3 Oct. 2019].
Salzgitter-ag.com. 2019. [online] Available at:
https://www.salzgitter-ag.com/fileadmin/finanzberichte/2018/gb2018/en/downloads/szag-
ar2018-complete.pdf [Accessed 3 Oct. 2019].