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22-3, Financial Reporting Considerations Related to Environmental Events and Activities (November 16, 2022)

Financial Reporting Alert 22-3
November 16, 2022
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Financial Reporting Considerations Related to Environmental Events and Activities


See FASB Staff Educational Paper Intersection of Environmental, Social, and Governance Matters With Financial Accounting Standards, issued on March 19, 2021; SEC’s interpretive release Commission Guidance Regarding Disclosure Related to Climate Change (the “2010 interpretive release”), issued on February 2, 2010, and request for input, “Public Input Welcomed on Climate Change Disclosures,” issued on March 15, 2021; and CAQ White Paper Audited Financial Statements and Climate-Related Risk Considerations, issued on September 9, 2021.
SEC Proposed Rule Release No. 33-11042, The Enhancement and Standardization of Climate-Related Disclosures for Investors.
See ASC 360-10-35-21 for examples of events or changes in circumstances that may indicate a long-lived asset (asset group) may not be recoverable. For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”
FASB Concepts Statement No. 8, Conceptual Framework for Financial Reporting — Chapter 4, Elements of Financial Statements.
See ASC 410-20-20, which cites the definition of promissory estoppel that is used in Black’s Law Dictionary, seventh edition.
FASB Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842).
FASB Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment.
ASC 330-10-20 defines market as follows: “As used in the phrase lower of cost or market, the term market means current replacement cost (by purchase or by reproduction, as the case may be) provided that it meets both of the following conditions:
  1. Market shall not exceed the net realizable value
  2. Market shall not be less than net realizable value reduced by an allowance for an approximately normal profit margin.”
FASB Accounting Standards Update No. 2021-10, Disclosures by Business Entities About Government Assistance.
While we believe accounting for the credits within the scope of ASC 740 is most appropriate, consistent with feedback received from the FASB staff, we believe it would also be acceptable for a company to account for the transferable credits in a manner similar to refundable credits as the company generating the credit does not need taxable income in order to monetize the credit.
If an entity’s policy is to reflect gain or loss in pretax earnings, it would not be appropriate to consider the expected proceeds when assessing realizability of the related DTA.
The two methods of accounting for an ITC are addressed in ASC 740-10-25-46 (see discussion in Section 3.5.9 of Deloitte’s Roadmap Income Taxes).
FASB Proposed Accounting Standards Update, Investments — Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method — a consensus of the FASB Emerging Issues Task Force.
SEC Staff Accounting Bulletin (SAB) Topic 5.Y, “Accounting and Disclosures Related to Loss Contingencies.”
Note that this discussion assumes that the debt is not measured at fair value on a recurring basis (e.g., the issuer has not elected the fair value option in ASC 815-15-25-4 or ASC 825-10). In addition, an entity should always consider the terms and conditions of a specific feature in light of the applicable accounting guidance before reaching a conclusion.
See the EPA’s Web site for a discussion of Scope 1, 2, and 3 inventory guidance.
SEC Interpretive Release No. 33-9106, Commission Guidance Regarding Disclosure Related to Climate Change.