‘Reserves’: things we don’t know how to account for?

The word ‘reserve’ has sometimes been used to describe two items on opposite sides of the balance sheet. The first item is oil or gas reserves, which are assets. The second item is insurance ‘reserves’, which are liabilities. Coincidentally, accounting standard setters have found both items hard to deal with. I think the label ‘reserve’… Continue reading ‘Reserves’: things we don’t know how to account for?

Putting the wrong kinds of numbers in P&L won’t help save the planet

Many companies will need to spend a lot of money reshaping their businesses to help save the planet. Some environmental campaigners say that companies should book all that spending as liabilities today. They argue that booking that spending today would make investors focus on that information and that investors would then put pressure on companies… Continue reading Putting the wrong kinds of numbers in P&L won’t help save the planet

Discount rates for very long maturities

A common question about discount rates is how to estimate a discount rate for assets and liabilities with very long maturities. Such a discount rate contains a term premium that cannot be based on evidence and can never be back-tested. As a result, that term premium is not really an estimate, it is just a… Continue reading Discount rates for very long maturities

Emission trading schemes: a fresh look

The most difficult question in accounting for emission trading schemes is deciding what to do with emission trading certificates received free of charge. Does the recipient have a liability on day 1? If not, should it recognise an immediate gain? Previous answers to this question have been unconvincing because they did not reflect the nature… Continue reading Emission trading schemes: a fresh look