Canada’s “IFRS Accounting Standards Discussion Group” (recently renamed from the previously long-standing title of “IFRS Discussion Group”) recently discussed the accounting for the development of carbon credits by a renewable energy generator.

To look at part of the discussion, consider a company with a solar energy facility that generates electricity to be sold into the spot energy market. The Company has a virtual power purchase agreement for the next 10 years, which includes the sale of the associated renewable energy credits: the credits are verified and certified by the government before being transferred to the customer. The credits meet the definition of an asset and are classified as inventory; their sale is part of the company’s ordinary activities, determined to be a performance obligation under IFRS 15.

The group discussed whether the credits should be viewed not as an output of the facility but rather as a non-monetary government grant, noting that they are in some sense of a construct of a government program and therefore might be seen as a transfer of value from the government – such an analysis might allow the entity the choice of measuring the credits at a nominal amount rather than at their fair value. IAS 20 includes within its scope “action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria,” but this excludes benefits provided only indirectly through action affecting general trading conditions, and “certain forms of government assistance which cannot reasonably have a value placed upon them and transactions with governments which cannot be distinguished from the normal trading transactions of the entity.”

Based on the group’s discussion, the determination might depend in part on whether the credits have value as soon as the related electricity is generated, or only after the credits are certified; this would depend in turn on the government’s role and the nature of the market for the credits. However, members emphasized that the fact of a government being involved in a given situation doesn’t necessarily entail the existence of a government grant: the government might simply be performing an administrative service, comparable to an engineer performing a final inspection before a building can be used or occupied (in contrast to renewable energy credits, government grants generally aren’t transferrable to other parties).

The meeting summary (which by the way, perhaps to celebrate the group’s change of name seems, to have become much more detailed lately) states: “Many Group members thought the answer would depend on the facts and circumstances. For example, they thought the RECs could be a government grant if the government is considered to be transferring an economic benefit to the Company, particularly in a compliance market. One Group member noted that in a compliance market, the government may effectively create a need for RECs through emissions regulations. Two Group members remarked that if the Company has compliance obligations arising from emission regulations, the government may transfer an economic benefit to the Company either by certifying RECs that would settle the obligation or by giving up the right to charge penalties for noncompliance.”

The issue may seem like yet another example of how the older accounting standards often come under strain when dealing with present-day brainwaves and complexities, in this case almost to the point of absurdity. The standards may indeed support the view that a particular credit “could be a government grant if the government is considered to be transferring an economic benefit to the Company.” But it’s perhaps also true that if (as ugly reality increasingly demands) you take a sufficiently authoritarian-friendly view of things (and even allowing that IAS 20 excludes from its scope the normal workings of the tax system), any income or asset accruing to the benefit of a person or company represents a concession by an all-powerful government that would have been within its rights to confiscate all output generated within its jurisdiction (and may still do so if the person or company steps out of line – take for example various Russian examples, and Trump’s past enthusiastic musings about civil asset forfeiture): at the extreme, any $100 of revenue from whatever source might more correctly be viewed as $100 of government grant; the majority of what a company currently records as assets might more correctly be regarded as being on loan from the government, capable of being snatched back at any time at the overlord’s discretion (you know, much as a woman’s capacity for biological self-determination might be limited to what mostly male lawmakers choose to allow). Of course, financial statements prepared under this ideology wouldn’t be particularly useful for investing purposes as we know them (but then under that way of looking at things, one couldn’t have much confidence in concepts of personal wealth and assets either) . Still, in the new world of non-monetary, government-approved certification and trading, which also happens to be one of recurring rejection of prevailing legal norms and embrace of ideological extremity, the group’s discussion may point to yet another way in which we can expect things to get worse.

Well, maybe we’ll return to other aspects of the issue in the future, if our political masters allow…

The opinions expressed are solely those of the author.