FASB update on environmental credits opens KPMG advisory work

KPMG’s environmental-credits work is about to shift from ad hoc ESG support to a cleaner operating model. FASB’s new standard, issued May 19 as ASU 2026-02, created Topic 818 for environmental credits and environmental credit obligations, and it gives clients a clearer accounting framework for items that had been handled inconsistently across inventory, intangibles, contingencies and obligation models.

That change matters inside firms like KPMG because the work will no longer sit neatly with sustainability alone. Finance teams will need to own recognition and measurement, audit teams will need to challenge the evidence behind balances and disclosures, and ESG specialists will need to supply cleaner data lineage, policy design and documentation. The friction point is obvious: sustainability groups have often treated credits as part of emissions strategy, while assurance teams will now treat them like any other balance-sheet or disclosure item that needs controls, traceability and consistent judgment.

Under the new model, compliance environmental credits are recorded at cost and not remeasured. Noncompliance credits are also recorded at cost, but they are tested for impairment at each reporting date. Credits used only for voluntary purposes generally are expensed as incurred and are not recognized as assets. The ECO liability is measured as the carrying amount of available compliance credits plus the fair value of any additional credits needed to settle the obligation, which raises the bar for valuation support and audit readiness in complex programs.

The first pressure will fall on clients with environmental regulation and on companies buying credits to meet internal carbon-footprint goals. That includes organizations active in carbon markets, cap-and-trade programs and renewable-energy strategies, where multiple jurisdictions and program rules can make disclosure messy if teams are not aligned. Deloitte said the guidance should reach both regulated companies and buyers using credits for internal targets, while PwC argued the board’s objectives were sound but needed refinements to better reflect economic substance and align with existing GAAP. Grant Thornton said the new standard would reduce diversity in practice, improve comparability and enhance disclosures.

For KPMG professionals, the message is practical: the credits work now has a calendar, a model and an audit trail. FASB started the project on its research agenda on December 15, 2021, moved it to the technical agenda on May 25, 2022, published a proposal on December 17, 2024, and finished redeliberations on August 13, 2025 before issuing the final standard. Public business entities must adopt it for annual periods beginning after December 15, 2027, with all other entities following after December 15, 2028, and early adoption is allowed. Once adopted, companies will record a cumulative-effect adjustment to opening retained earnings, not restate prior periods, which should give advisory and assurance teams a near-term run of implementation work long before the first compliant year closes.