Key Impact Points:
- The IASB has published a consultation document proposing eight illustrative examples to improve the reporting of climate-related uncertainties.
- These examples aim to enhance transparency and connect financial statements with sustainability disclosures.
- Stakeholders are invited to provide feedback on the proposed guidance by 28 November 2024.
The International Accounting Standards Board (IASB) has released an Exposure Draft on Climate-related and Other Uncertainties in Financial Statements, proposing eight examples to help companies apply IFRS Accounting Standards when reporting the effects of climate-related and other uncertainties in their financial statements.
Background
In response to strong demand from stakeholders, particularly investors, the IASB developed these examples to address concerns about the sufficiency and consistency of information regarding climate-related uncertainties in financial statements. The illustrative examples aim to:
- Improve transparency of information in financial statements.
- Strengthen the connection between financial statements and other parts of a company’s reporting, such as sustainability disclosures.
Current Developments
The eight illustrative examples cover areas such as materiality judgments, disclosures about assumptions and estimation uncertainties, and disaggregation of information. While the focus is on climate-related uncertainties, the principles and requirements illustrated in these examples apply equally to other types of uncertainties.
Collaboration with ISSB:
In developing these examples, the IASB collaborated with members of the International Sustainability Standards Board (ISSB) and its technical staff. This collaboration ensured that the illustrative examples align with the ISSB’s sustainability-related disclosure requirements.
Investor Concerns and IASB’s Response:
“Investors have clearly communicated that they factor climate-related risks into their decision-making process. Although our Accounting Standards already address such risks, we have identified a need for illustrative examples to improve the application of these requirements. Our proposed examples aim to provide this clarity, helping companies better communicate in their financial statements how climate-related and other uncertainties affect their financial position and performance.” – Andreas Barckow, Chair of the IASB
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Guidance, Not New Requirements:
The illustrative examples do not add to or change the requirements in IFRS Accounting Standards. Instead, they provide guidance on applying the existing standards to give investors better information about climate-related risks and other uncertainties.
Impact and Implications
- Enhancing Financial Reporting:
The proposed examples are part of several actions by the IASB to improve the reporting of climate-related and other uncertainties. By enhancing the clarity and consistency of financial statements, these examples can help companies effectively communicate how such uncertainties impact their financial position and performance. - Aligning Financial and Sustainability Reporting:
The integration of financial reporting with sustainability disclosures ensures that companies present a cohesive view of their operations and risks, thereby improving investor confidence and decision-making.
Conclusion
The IASB’s proposed illustrative examples represent a significant step towards improving the transparency and consistency of climate-related reporting in financial statements. By providing clear guidance on applying IFRS Accounting Standards, these examples help bridge the gap between financial and sustainability reporting, aligning with investor expectations.
Call to Action
The IASB invites all stakeholders to review the proposed illustrative examples and provide feedback by 28 November 2024. Engaging with this consultation process will ensure that the final guidance meets the needs of companies and investors, fostering better reporting practices across the industry.
