Introduction

The report will be written in the context of Syn gas Limited, which is an Australian based organisation providing energy and power solutions by converting renewable waste into fuel. The chosen company is enlisted on the Australian Stock Exchange (SAX). At the beginning of the report, a brief background regarding the company’s activities shall be given. After that, by focusing on the importance of accounting statements and annual reports, concepts such as “carbon credit” and “carbon liabilities” shall be further explained. It will be interesting to recognize the importance of disclosing such information in the annual report of the company. To fulfill the purpose of the story, the 2017-2018 annual report of Syn gas Limited will be selected and analysed. The plan of action involves examining the perspectives of investors and shareholders. Evaluation of the financial performance of the company will be done, and a carbon-related issue faced by Syn gas Limited shall be studied and evaluated in detail.

Company Background

Syn gas Limited is based in Australia and was founded in 1993. At present, the subsidiaries are Syn gas Energy Limited, Biosynthesis Pt Ltd and PK Paramount Sn Bud. It mainly operates in the energy sector, and it is listed on the Australian Stock Exchange (SAX). The company develops and explores mining tenements. The company converts recyclable wastes into renewable syn gas or synthetic gas (Syn gas-products.com., 2019). It is further used to generate power and electricity. In other words, the company considers waste valuable, and it uses advanced methods of disposing of waste into environmentally sustainable products. Investment opportunities are present within the energy sector, and Syn gas Limited is interested in MEL 418 (Reutars.com, 2018). It utilities salable classification systems and hydrolysis to convert waste into energy. Again, it uses ACT or Advanced Conversion Technology to convert waste into fuel. The company falls under the Coal industry, and it has not yet generated any revenues. 

Abstract

The assignment is focussed on the issue of carbon liabilities and credits and approaches that business entities utilise to deal with carbon emissions. The report is written on Syngas Limited, which operates within the energy sector. Further, an explanation has been given on measurement and recognition of carbon credits. The chosen company faced issues related to carbon emission and therefore, the annual report of the company has been selected to analyse the investor’s perspectives regarding liabilities, assets, and financial output of Syngas Limited.

Part A

The issue of presenting carbon credits and carbon liabilities in the annual report of an entity: A brief discussion

As per the AASB frameworks, it is essential for the organisations to maintain certain standards while preparing the annual report. The AASB 137 and AASB 138 clearly define the importance of mentioning the carbon credits and liabilities in the annual financial statement (appendix 1). For the case of Syngas Ltd., the details are absent from their annual financial report.

A carbon credit is a permit that enables an organisation to produce carbon emission within a certain amount, and the company can trade it, in case of unfulfilled allowance. Additionally, carbon liability is the term used to determine or calculate a value associated with carbon emissions. Both these factors are essential for a company to incorporate in the company’s annual report because carbon emission is a severe threat to the environment. A company operating in the coal industry such as Syngas Limited is liable to any form of ecological imbalance. Pollution causes grave danger to health, and therefore, the company is answerable to people and the society where it is managing its operations. Financial reports are prepared to outline the account information in detail. By using permits and licenses, a company would find ways to control carbon emission (Jung et al., 2018). Moreover, an annual report provides a general idea regarding the activities of the company. It can be utilised by shareholders and small investors to get an idea about the overall performance and activities of the Company (Aasb.gov.au, 2019).

Carbon credits can either be issued by the government or by the organisation itself. It can help investors in interpreting company actions. Carbon liabilities indicate the situation of resources within the company. Moreover, companies should take protecting society from greenhouse gas seriously. Hence, eco-friendly practices and environmental regulations are considered necessary. 

Explanation of the recognition and measurement of carbon credits by an entity

The BAAS 138 describes the methods that should used to measure carbon credits of an entity. Further, the details are required to be mentioned in the annual report. A company that is responsible for carbon emission or greenhouse gas is undoubtedly liable for environmental issues. Hence, it is essential to measure and recognize carbon credits. Removal of one-ton carbon is equivalent to the addition of one carbon credit. Despite Syn gas Limited’s effort to design these concepts to deal with the issues of climate change, the details are absent from the annual report, thus showing lack of conformity with the BAAS 138. Measurement is done via software programs or a calculator. After that, it becomes easier to observe the emission rate. The company understands the importance of creating realistic plans to reduce carbon footprints. Hence, the removal of carbon emission would allow the company to conduct sustainable business.

Further, if a company emits CO in the atmosphere without recognizing its implications, then, the company is undoubtedly liable. Carbon management initiatives taken by the company would help in controlling the harmful impact of CO emission (Hearse, 2016). The objective of the company is to attain zero carbon emission and by disclosing information regarding carbon credits and liabilities, the company ensures that it is following the government policies and guidelines. Technology has undoubtedly developed the process of converting waste into useful energy or power; however, it has also raised alarms. Syn gas or Synthetic gas consists of carbon monoxide, hydrogen and carbon dioxide as well. The idea is to generate electricity, and therefore, the process of coal classification is involved. Hence, by measuring carbon credits, the company will manage and control the harmful impact of emission.

Explanation of the recognition and measurement of carbon liabilities by an entity

Similar to a carbon credit, carbon liability is another crucial measurement that should be presented by companies that are concerned about ecological welfare. The AASB 137 defines the standards to measure the carbon liabilities of an organisation. Syngas Limited emits a massive percentage of carbon while converting waste into fuel, and hence, the government needs to crosscheck their emission rate but the details are absent from their annual report.

Measurement of carbon liabilities falls under the government scheme (Foerster et al., 2017). However, there have been notable changes to this rule and companies are now liable to disclose their emission rate in the accounting systems. Syngas Limited is a large corporation, and naturally, it should measure and recognise its carbon liabilities along with carbon credits. Accounting information might vary if a firm has no carbon liabilities but possess carbon credits. The balance sheet of the company would differ as well. Naturally, there would be an imbalance of numbers. It might hamper the reputation and operations of the company. Hence, by clearly understanding the need to measure carbon liabilities, a company would be benefitted in the future (Marshall, 2016). In case, the company does not recognise this need, then the likelihood of financial loss increases. An annual report is prepared by outlining the past activities of the fiscal year, and if the company fails to measure the estimated amount, then it is undoubtedly liable for the consequences.

According to the global policies and standards, the company must incorporate information related to carbon credits and liabilities in the accounting information system.

Part B

Carbon related issue presented in the annual report of the chosen company and comments regarding the appropriateness of disclosed information

The BAAS 13 and BAAS 15 discusses about the importance of presenting the measurements of fair value and customer contract revenues (appendix 2, 3). Such details are integral to ensure the presentation of a complete annual report. The Company, Syn gas Limited, deals with syn gas combustion and, naturally, combustion issues will be created while converting waste into energy. The usage of high-hydrogen fuel is a risky affair. In its annual report, it has maintained the BAAS 15 standards as can be seen on page 37 of the annual report, but the fair value measurement is unclear and requires distinct addressing. Despite the regulations set by the company, it can be suggested that continuous improvement in the regulatory affairs will help the company in dealing with carbon-related issues.

Moreover, by 2050, the Australian government aims to reach a target of zero-emission and make the planet safer and habitable. The goal can be achieved only when Syn gas Limited achieves CO2 reduction rate. Moreover, in Australia, the present situation of the economy is unpredictable. Adding to that, an increased rate of carbon emission would result in climate change. The critical issues faced by the company can be categorized into issues related to stability, location, and reaction (Hyundai, D. and Tupungato, 2015). Reaction issues are related to time scale and chemistry. The company mixes a range of chemicals such as hydrogen and CO, which, in turn, produces fuel. The concern lies at the time of mixing fuels. Combustion issues are rampant.

Further, other problems are related to stability and location. The former can be divided into dynamic and static regimes. Stable operations while dealing with hydrogen are doubtful.

Further, the company operates in the coal industry, and coal-burning certainly has negative consequences. Apart from health-related complications of the population, coal-burning can destroy the environmental balance. However, from the company’s perspective, it is evident that the focus is upon converting renewable waste by using advantaged technology and the process certainly involves carbon emission (Listcorp.com, 2019). Nevertheless, disclosure regarding the issues and its consequences has not been highlighted in the company’s annual report. Despite regulations and policies, the company has not disclosed such information in the accounting statements. Measurement and recognition of carbon credits are not similar to the disclosing of carbon-related issues. There is a lack of complete representation and compliance with regulations. Hence, it can be recommended that to sustain within the society, the current need is to become responsible for issues that can hamper environmental balance.

Evaluation of the impact of disclosing information related to liabilities, assets and financial performance from the perspective of investors

Syngas Limited is a big corporation, and due to its activities, the investors and shareholders have the right to get the detailed information regarding its activities. The AASB 101 specifies the requirements of formulating the financial reports for an organisation. But Syngas Limited lacks conformity with this standard as well due to lack of supply of detailed information (page 26 of annual report). The Financial Stability Board has set a special task force, and in 2017, information related to company liabilities, carbon credits and regulations have been published (Adrian and Liang, 2016).  This data is essential for creditors, investors as well as shareholders because they are associated with money matters. Disclosing liabilities and financial performance would help the investors to make business decisions and get insights regarding risk management.

Further, measurements related to carbon liabilities and credits would help the investors in building an idea regarding the company’s activities. It is like a piece of useful evidence for investors. The company has adopted AASB 16, and it is presented in the financial statement of the Company (Listcorp.com., 2019). Investors to locate risks, opportunities, weaknesses, and strengths of the firm can study the financial capability of the company. By disclosing information related to liabilities and assets, the firm, however, risks its privacy. Nevertheless, apart from profit-making, if a firm is concerned about sustainable business practices and creating value, then it can present its carbon management goals and plans in the annual report. This approach, in turn, allows the company to maintain transparency and accountability of the business.

Conclusion

The report has been written to understand the importance of accounting concepts such as credits, liabilities or assets of the chosen company. Here, the Australian Accounting Standards has been considered. After that, based on Syngas Limited, further research has been conducted to understand the activities of the company. The focus was upon carbon emission and accounting concepts related to it, such as carbon credits and liabilities. The 2017-18 Annual report was selected to gain insights regarding the company’s activities.

Further, it was understood that carbon emission is a serious environmental threat and Syn gas Limited operates within the coal industry, which makes it liable for environmental issues. The importance of disclosing Company related information has been given. Lastly, the perspectives of creditors and investors have been evaluated to understand the importance of revealing asset and liability specific information in the annual report.

David Marks

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