The International Accounting Standards Board (IASB) has unveiled a new exposure draft aimed at improving how companies report climate-related risks in their financial statements. The draft, titled IASB/ED/2024/6: Climate-related and Other Uncertainties in the Financial Statements (Proposed Illustrative Examples), is open for public comment until 28 November 2024.
Why It Matters The IASB’s move comes in response to concerns from the 2020 Agenda Consultation, which highlighted inconsistencies in how companies apply IFRS standards to climate-related risks and insufficient disclosure of these risks. The pandemic underscored the need for clear and effective reporting, as physical inspections and in-person evaluations became challenging.
What’s in the Draft The exposure draft includes eight illustrative examples designed to clarify how companies should report various types of uncertainties, with a focus on climate-related issues. These examples are meant to guide companies in applying existing standards like IAS 1, IFRS 7, and IAS 37, and cover scenarios such as:
- When a manufacturer in a capital-intensive industry needs to disclose climate-related risks.
- How a service provider with minimal climate-related risk should report its situation.
- The requirements for disclosing assumptions about greenhouse gas emissions and related regulations.
Key Proposals The draft offers practical examples, including:
- Disclosures when materiality judgments lead to additional information.
- Scenarios where materiality judgments do not necessitate extra disclosures.
- Detailed assumptions for entities facing greenhouse gas emission regulations.
- Reporting on credit risk and decommissioning provisions.
Looking Ahead The IASB aims to refine and standardize the reporting of climate-related and other uncertainties, seeking input from stakeholders to ensure the guidance meets the needs of the global business community. The feedback period will help shape the final guidelines, potentially setting new standards for transparency and consistency in financial reporting.
For more details and to provide feedback, visit the IASB’s website before the November deadline.