1. AOSSG Emission Trading Schemes AOSSG Emission Trading Schemes Outline of progress and Issues for discussion Presented by CASC and ASBJ Agenda-K-2

2. 2015-9-14 2 AOSSG ETS Project CASC & ASBJ Outline Progress on the ETS project Progress on the ETS project Summary of answers to Questionnaire of AOSSG ETS Project Summary of answers to Questionnaire of AOSSG ETS Project Feedback to IASB Feedback to IASB

3. 2015-9-14 3 AOSSG ETS Project CASC & ASBJ Ⅰ Progress on the ETS project In March, we drafted action plan and timeline on the ETS, and issued it to all AOSSG members. In March, we drafted action plan and timeline on the ETS, and issued it to all AOSSG members. In April, we drafted a questionnaire of AOSSG ETS project, and invited all AOSSG members to provide the accounting practices. In April, we drafted a questionnaire of AOSSG ETS project, and invited all AOSSG members to provide the accounting practices. Up to June, 10 comments received from Korea, Australia, India, New Zealand, Pakistan, Sri Lanka, Turkey and so on. Up to June, 10 comments received from Korea, Australia, India, New Zealand, Pakistan, Sri Lanka, Turkey and so on. On July 20, CASC and ASBJ held the preliminary meeting in Beijing. On July 20, CASC and ASBJ held the preliminary meeting in Beijing.

4. 2015-9-14 4 AOSSG ETS Project CASC & ASBJ Ⅱ Summary of answers to Questionnaire of AOSSG ETS Project The following jurisdictions have provided us their answers to the questionnaire: The following jurisdictions have provided us their answers to the questionnaire: Non-Annex 1 of KP Annex 1 of KP ChinaJapan KoreaAustralia India New Zealand PakistanTurkey Sri Lanka Hong Kong

5. 2015-9-14 5 AOSSG ETS Project CASC & ASBJ 1 ． Country ’ s obligation to reduce emissions Does your country have a specific obligation to reduce emissions under the KYOTO PROTOCOL (KP) framework? (1.1 and 1.2) Does your country have a specific obligation to reduce emissions under the KYOTO PROTOCOL (KP) framework? (1.1 and 1.2) Japan, Australia, New Zealand, Turkey Japan, Australia, New Zealand, Turkey China, Korea, India, Pakistan, Sri Lanka China, Korea, India, Pakistan, Sri Lanka Any other similar schemes besides carbon emission rights, such as mechanisms for sulfur dioxide or renewable energy resources? (1.3) Any other similar schemes besides carbon emission rights, such as mechanisms for sulfur dioxide or renewable energy resources? (1.3) Australia: the Renewable Energy Act (2006), a Renewable Energy Certificate System Australia: the Renewable Energy Act (2006), a Renewable Energy Certificate System

6. 2015-9-14 6 AOSSG ETS Project CASC & ASBJ Are there any laws or regulations related to the schemes promulgated by the domestic relevant departments? (1.4) Are there any laws or regulations related to the schemes promulgated by the domestic relevant departments? (1.4) China: Operation and Management of Clean Development Mechanism Projects China: Operation and Management of Clean Development Mechanism Projects Japan: The Experimental Emission Trading Scheme and the Tokyo Program Japan: The Experimental Emission Trading Scheme and the Tokyo Program New Zealand: Climate Change Response (Emissions Trading) Amendment Act 2008 New Zealand: Climate Change Response (Emissions Trading) Amendment Act 2008 Pakistan: Ministry of Environment ’ s National Operational Strategy on Clean development. Mechanism Income tax ordinance, 2001 exempts revenue from sale of CERs. Pakistan: Ministry of Environment ’ s National Operational Strategy on Clean development. Mechanism Income tax ordinance, 2001 exempts revenue from sale of CERs.

7. 2015-9-14 7 AOSSG ETS Project CASC & ASBJ 2 ． Emissions allowances and its trading situations Are the emissions allowances for the compliance period allocated free of charge in advance exchanged or issued after the completion of emissions reductions? (2.1) Are the emissions allowances for the compliance period allocated free of charge in advance exchanged or issued after the completion of emissions reductions? (2.1) Japan: Japan: issued allowances at the beginning of a period, or issued allowances at the beginning of a period, or issued allowances equivalent to a gap between a target and an actual emissions after the period. issued allowances equivalent to a gap between a target and an actual emissions after the period. Australia: in advance Australia: in advance New Zealand: a number of mechanisms to freely grant allowances. New Zealand: a number of mechanisms to freely grant allowances.

8. 2015-9-14 8 AOSSG ETS Project CASC & ASBJ Exchanges for emissions trading and active emissions trading market ?(2.2 and 2.3) Exchanges for emissions trading and active emissions trading market ?(2.2 and 2.3) China: Tianjin Climate Exchange, Shanghai Environment and Energy Exchange and Beijing Enviroment Exchange China: Tianjin Climate Exchange, Shanghai Environment and Energy Exchange and Beijing Enviroment Exchange Japan: Tokyo Stock Exchange Group and Tokyo Commodity Exchange just established a joint venture for setting up an emissions trading exchange in April 1, 2010. Japan: Tokyo Stock Exchange Group and Tokyo Commodity Exchange just established a joint venture for setting up an emissions trading exchange in April 1, 2010. Australia: In 2007, there was an Australian Climate Exchange but the website is no longer active. Australia: In 2007, there was an Australian Climate Exchange but the website is no longer active. New Zealand: New Zealand Carbon Exchange New Zealand: New Zealand Carbon Exchange

9. 2015-9-14 9 AOSSG ETS Project CASC & ASBJ how are the emissions allowances valued? (2.4) how are the emissions allowances valued? (2.4) New Zealand: A cap on the price of carbon of $25 until 2013. A cap on the price of carbon of $25 until 2013. There is no floor price There is no floor price Turkey: valued with reciprocal agreements Turkey: valued with reciprocal agreements Sri Lanka: based on international accepted markets Sri Lanka: based on international accepted markets

10. 2015-9-14 10 AOSSG ETS Project CASC & ASBJ 3 ． Accounting standards for emission rights Japan: Japan: ASBJ issued “ Practical Solution on Tentative Treatment of Accounting for Emission Trades ” in 2004. ASBJ issued “ Practical Solution on Tentative Treatment of Accounting for Emission Trades ” in 2004. Revised it to clarify accounting treatments related to the experimental emissions trading scheme in 2009. Revised it to clarify accounting treatments related to the experimental emissions trading scheme in 2009.

11. 2015-9-14 11 AOSSG ETS Project CASC & ASBJ 4 ． Comments on the accounting issues in Cap and Trade Schemes Should the granted allowances received free of charge from government be recognized as assets? (4.1.1) Should the granted allowances received free of charge from government be recognized as assets? (4.1.1) China, Korea, Australia, New Zealand, Sri Lanka, Hong Kong: as assets Japan: as assets or off balance sheet items (views are divided) Turkey: as a public good When should the entity recognize these assets? (4.1.2) When should the entity recognize these assets? (4.1.2) China, Japan, Korea, Australia, New Zealand, Sri Lanka, Hong Kong : when they are received or controlled by the entity Turkey: It should be carried out off balance sheet items.

12. 2015-9-14 12 AOSSG ETS Project CASC & ASBJ Nature of the assets (4.2.1 and 4.2.2) Nature of the assets (4.2.1 and 4.2.2) China, Japan, Korea, Australia, New Zealand: intangible assets China, Japan, Korea, Australia, New Zealand: intangible assets Hong Kong: intangible assets or inventories, depending on how the holder intends to use it. Hong Kong: intangible assets or inventories, depending on how the holder intends to use it. Sri Lanka: finance instruments Sri Lanka: finance instruments

13. 2015-9-14 13 AOSSG ETS Project CASC & ASBJ Initial measurement (4.3) Initial measurement (4.3) China, Australia, New Zealand, Sri Lanka: fair value China, Australia, New Zealand, Sri Lanka: fair value Korea, Turkey : initially measured at acquisition cost Korea, Turkey : initially measured at acquisition cost Japan : : fair value or initially measured at acquisition cost Japan : : fair value or initially measured at acquisition cost Hong Kong: Hong Kong: Full market value approach – based on the market value at date of initial recognition; Full market value approach – based on the market value at date of initial recognition; Cost of settlement approach at initial market value – based on the market value at date of initial recognition; Cost of settlement approach at initial market value – based on the market value at date of initial recognition; Cost of settlement approach at nominal amount – based on cost. Cost of settlement approach at nominal amount – based on cost.

14. 2015-9-14 14 AOSSG ETS Project CASC & ASBJ Subsequent measurement (4.4.1 and 4.4.2) Subsequent measurement (4.4.1 and 4.4.2) Australia, New Zealand, Sri Lanka: fair value Japan: should not remeasured (subject to impairment); should not be amortized /depreciated should not be amortized /depreciated China, Korea: cost model Hong Kong: Cost or revaluation model under IAS 38 “ Intangible Assets ”. Cost or revaluation model under IAS 38 “ Intangible Assets ”. Cost model under IAS 2 “ Inventories ” Cost model under IAS 2 “ Inventories ”

15. 2015-9-14 15 AOSSG ETS Project CASC & ASBJ Liability (4.5.1 and 4.5.2) Liability (4.5.1 and 4.5.2) China, Japan, Korea, Australia, New Zealand, Hong Kong, Sri Lanka, Turkey: As emissions have occurred.

16. 2015-9-14 16 AOSSG ETS Project CASC & ASBJ Measurement of liability (4.6.1 and 4.6.2) Measurement of liability (4.6.1 and 4.6.2) Australia, New Zealand, Sri Lanka : fair value Korea: based on the carrying amount of allowances on hand China, Japan: based on the carrying amount of allowances on hand based on the carrying amount of allowances on hand but for the excess of actual emission over the allowance on hand, based on market value but for the excess of actual emission over the allowance on hand, based on market value

17. 2015-9-14 17 AOSSG ETS Project CASC & ASBJ Earnings from the granted allowances (4.7.1 and 4.7.2) Earnings from the granted allowances (4.7.1 and 4.7.2) Australia, China, Japan, Sri Lanka, New Zealand: Government grants Korea: When granted allowances are initially measured at cost, earnings from the reception of granted allowances will not be recognized. Turkey: carried out in equity in a special fund, as capital reserve

18. 2015-9-14 18 AOSSG ETS Project CASC & ASBJ If recognized as profit or loss, should the earnings be recognized within profit or loss for the current period at one time or allocated through profit or loss through the whole compliance period? (4.7.3) If recognized as profit or loss, should the earnings be recognized within profit or loss for the current period at one time or allocated through profit or loss through the whole compliance period? (4.7.3) China, Japan, Korea, Hong Kong: on a systematic and rational basis over compliance period (on the basis of passage of time or in proportion to actual emissions) New Zealand, Sri Lanka: at one time when the entity obtains control of the granted allowances New Zealand, Sri Lanka: at one time when the entity obtains control of the granted allowances

19. 2015-9-14 19 AOSSG ETS Project CASC & ASBJ how should the entity initially and subsequently measure the purchased allowances as a buyer? (4.8.1 and 4.8.2) how should the entity initially and subsequently measure the purchased allowances as a buyer? (4.8.1 and 4.8.2) Australia, New Zealand: at fair value China, Korea, Turkey: cost model Japan: for trading, at fair value; for trading, at fair value; for sale in the ordinary course of business, in accordance with IAS 2; for sale in the ordinary course of business, in accordance with IAS 2; for the purpose of offsetting an entity ’ s emission obligations, at cost. for the purpose of offsetting an entity ’ s emission obligations, at cost. Hong Kong: Full market value approach; Full market value approach; Cost of settlement approach at initial market value; Cost of settlement approach at initial market value; Cost of settlement approach at nominal amount. Cost of settlement approach at nominal amount.

20. 2015-9-14 20 AOSSG ETS Project CASC & ASBJ Assets and revenues related to CERs (4.9.1, 4.9.2, 4.9.3) Assets and revenues related to CERs (4.9.1, 4.9.2, 4.9.3) China, Korea, Australia, New Zealand, India, Turkey : to recognize asset and revenues when the entity has control Pakistan: Current assets relating to CERs should be recognized from commencement date of the CDM project. Current assets relating to CERs should be recognized from commencement date of the CDM project. Costs incurred on generation of CERs included in the asset valuation. (treat as inventory). Costs incurred on generation of CERs included in the asset valuation. (treat as inventory). Revenues from CERs should be recognized on the contract date for the sale of the CERs. Revenues from CERs should be recognized on the contract date for the sale of the CERs. Sri Lanka: As the contract progress.

21. 2015-9-14 21 AOSSG ETS Project CASC & ASBJ Liability related to CERs (4.10.1 and 4.10.2) Liability related to CERs (4.10.1 and 4.10.2) Korea, India, New Zealand: No liability should be recognized. Australia, China, Hong Kong, Sri Lanka, Pakistan: The obligation should be recognized as a liability during production process.

22. 2015-9-14 22 AOSSG ETS Project CASC & ASBJ Forward contract (4.11) Forward contract (4.11)Korea: Within the scope of derivatives under IAS 39, the entity should consider whether hedge accounting is applied to that contract. Within the scope of derivatives under IAS 39, the entity should consider whether hedge accounting is applied to that contract. If hedge accounting is not applied to that contract, the profit or loss of changes in the fair value of that contract should be recognized in profit or loss for the period. If hedge accounting is not applied to that contract, the profit or loss of changes in the fair value of that contract should be recognized in profit or loss for the period. IAS 37 should be applied if the forward contract is firm commitment, onerous contract and out of the scope of derivatives under IAS 37 should be applied if the forward contract is firm commitment, onerous contract and out of the scope of derivatives under Australia, China, New Zealand: IAS 39 Sri Lanka: fair value

23. 2015-9-14 23 AOSSG ETS Project CASC & ASBJ Reward or penalty (4.12) Reward or penalty (4.12) China, Korea, New Zealand, Sri Lanka, Hong Kong: recognized as gains/income or losses/expenses.

24. 2015-9-14 24 AOSSG ETS Project CASC & ASBJ Presentation and disclosure (4.13) Presentation and disclosure (4.13) Australia, China, New Zealand : both financial and non-financial information, (the related assets and liabilities, the sales volume, sales price, the CDM information, etc. in notes) Korea: (a) the characteristics of the scheme; (b) the accounting policies; (c) the quantity and the amount of granted and purchased allowances; (d) the quantity and the amount of allowances derecognized during the period; (e) the quantity and the amount of allowances that should be surrendered at the end of the compliance period; (f) the fair value of granted and purchased allowances at initial recognition and at the end of the reporting period; Hong Kong: the appropriate accounting policy / principles, and follow the other detailed disclosure requirements in the relevant standards that the assets / liabilities are accounted for Sri Lanka: Separate disclosure as a note.

25. 2015-9-14 25 AOSSG ETS Project CASC & ASBJ 5. IASB discussion 5.1, 5.2 and 5.3) Does your country agree with IASB ’ s tentative decisions? If not, why? Are there any more appropriate proposals? (5.1, 5.2 and 5.3) China, Hong Kong, New Zealand, Sri Lanka: Agree with IASB. Japan: Views are divided on whether allowances should be recognized initially at fair value or not. Views are divided on whether allowances should be recognized initially at fair value or not. Disagree with the recognition of a liability for the obligation to reduce its emissions when the allowances are granted. Disagree with the recognition of a liability for the obligation to reduce its emissions when the allowances are granted.Korea: Agree with the scope of the project, and the initial measurement of liability which is related to actual emissions in excess of allowances on hand. Agree with the scope of the project, and the initial measurement of liability which is related to actual emissions in excess of allowances on hand. Disagree with the initial measurement of allowances received free of charge from government. Disagree with the initial measurement of allowances received free of charge from government. Australia: Disagree that liabilities should be recognized when the assets are recognized. Liabilities should only be recognized when emissions occur. Turkey: The right to pollute is a public good. Ownership status of the company of this right is very questionable.

26. 2015-9-14 26 AOSSG ETS Project CASC & ASBJ Ⅲ. Feedback to IASB (General comments) Urgent need for authoritative standard applied to ETS Urgent need for authoritative standard applied to ETS The reduction of greenhouse gases to promote the prevention of global warming is a central issue for both developed and developing countries. The reduction of greenhouse gases to promote the prevention of global warming is a central issue for both developed and developing countries. A number of governments around the world have implemented or are considering introduction of schemes to reduce emissions through the use of market mechanism – emission trading schemes （ ETS ）. A number of governments around the world have implemented or are considering introduction of schemes to reduce emissions through the use of market mechanism – emission trading schemes （ ETS ）. There is no authoritative guidance that deals specifically with accounting for ETS since withdrawal of IFRIC 3. There is no authoritative guidance that deals specifically with accounting for ETS since withdrawal of IFRIC 3. Considerable diversity in practice has arisen due to the several approaches developed and applied to account for ETS. Considerable diversity in practice has arisen due to the several approaches developed and applied to account for ETS. Support for IASB/FASB project schedule Support for IASB/FASB project schedule The discussion in joint meetings should be accelerated to publish an exposure draft in H2 of 2011 and to finalize a standard in 2012. The discussion in joint meetings should be accelerated to publish an exposure draft in H2 of 2011 and to finalize a standard in 2012.

27. 2015-9-14 27 AOSSG ETS Project CASC & ASBJ Ⅲ. Feedback to IASB (Specific comments) Deliberate the issues from global perspective A wide range of schemes other than EU-ETS now exists or will be introduced to help to reduce emission levels and promote investment in alternative forms of energy. Accounting not only for cap & trade schemes but also for baseline & credit schemes should be discussed as a main issue in the project. Main features of cap & trade schemes around the world may be different from those of EU-ETS in such as a commitment period, a compliance period and allocation of allowances for future compliance periods. There may be no active market in some cases.

28. 2015-9-14 28 AOSSG ETS Project CASC & ASBJ Ⅲ. Feedback to IASB (Specific comments) Address the accounting for CERs Asia-Oceania countries except for Australia, New Zealand, and Japan have no obligation to reduce missions under the Kyoto Protocol. Asia-Oceania countries except for Australia, New Zealand, and Japan have no obligation to reduce missions under the Kyoto Protocol. This project should be scoped broadly so as to address the accounting for project-based certificates such as certified emission reductions (CERs). This project should be scoped broadly so as to address the accounting for project-based certificates such as certified emission reductions (CERs).

29. 2015-9-14 29 AOSSG ETS Project CASC & ASBJ Ⅲ. Feedback to IASB (Specific comments) Deliberate concurrently with IAS20 Deliberate concurrently with IAS20 The accounting for allocated allowances for less than fair value is interrelated with the accounting for government grants. The accounting for allocated allowances for less than fair value is interrelated with the accounting for government grants. This projects should be conducted concurrently with the revision of IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. This projects should be conducted concurrently with the revision of IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.