[Global Financial Insights] FASB Environmental Credits and ISSB Updates

Editorial Team – [2026] 186 taxmann.com 804 (Article)

Global Financial Insights is a weekly feature for the Accounts and Audit Module subscribers of Taxmann.com. It provides you with the latest updates on financial reporting and auditing practices from across the globe. Here is this week’s financial update:

1. Financial Accounting Standard Board Issues Accounting Guidance on Environmental Credits

The Financial Accounting Standards Board (FASB) has issued a new Accounting Standards Update (ASU) introducing comprehensive guidance on the accounting and disclosure requirements for environmental credits and related obligations. The update is intended to address the lack of consistent accounting practices in this rapidly evolving area and applies to entities that generate, purchase, receive, or use environmental credits for regulatory compliance purposes.

The new guidance establishes when environmental credits should be recognised as assets and how they should be measured and presented in financial statements. Credits expected to be used for regulatory compliance or transferred through exchange transactions can be recognised as assets, while credits acquired for voluntary sustainability initiatives may need to be expensed as incurred.

The ASU also distinguishes between compliance and non-compliance environmental credits for subsequent measurement purposes. Credits held for compliance obligations will generally continue to be measured at cost, whereas other credits will be subject to impairment testing, with entities also being permitted in certain cases to adopt a fair value approach.

In addition to recognition and measurement requirements, the update introduces enhanced disclosure obligations, including information about how environmental credits are obtained, their intended use, accounting policies applied, and significant judgments involved in measurement.

The amendments will become effective for public business entities for annual periods beginning after 15th December 2027, while other entities will apply the guidance from periods beginning after 15th December 2028.

Source – Financial Accounting Standard Board

2. Financial Reporting Council Identifies Areas for Improving the Quality of Digital Financial Reporting

The Financial Reporting Council (FRC) has published its latest review of structured digital reporting practices among UK listed companies, highlighting opportunities to improve the quality, consistency, and usability of digitally tagged financial information.

Based on a review of annual reports of 30 listed companies, the report notes that structured digital reporting is now widely established across the UK market, with most entities producing compliant filings. However, the FRC observed recurring issues in the application of digital tags and reporting practices that may reduce the usefulness of financial data for investors, regulators, and other users.

The regulator emphasised that many of these shortcomings can be addressed through stronger internal review processes, clearer accountability over tagging decisions, and more effective use of existing guidance and reporting tools. The findings come at a time when structured financial data is becoming increasingly important for data-driven analysis and the growing use of artificial intelligence in investment and regulatory processes.

Looking ahead, the FRC intends to continue focusing on improving reporting quality by encouraging more accurate tagging aligned with the underlying accounting meaning, while also promoting greater accessibility and usability of structured reports.

Source – Financial Reporting Council

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