• Improved Transparency: Proposed examples aim to enhance clarity in financial statements.
• Investor Confidence: Addressing concerns about insufficient climate-related disclosures.
• Collaborative Effort: IASB works with ISSB to align financial and sustainability reporting.

The International Accounting Standards Board (IASB) has published a consultation document proposing eight examples to illustrate how companies should report the effects of climate-related and other uncertainties in their financial statements.

Transparency and Consistency

These examples respond to strong investor demand for clearer information on climate-related uncertainties in financial statements. Investors noted that current disclosures often lacked sufficient detail or were inconsistent with other company reports. The proposed examples focus on materiality judgments, assumptions, estimation uncertainties, and disaggregation of information, aiming to enhance transparency and align financial statements with sustainability disclosures.

IASB and ISSB Collaboration

The development of these examples involved collaboration with the International Sustainability Standards Board (ISSB) to ensure alignment with sustainability-related disclosure requirements. Andreas Barckow, IASB Chair, emphasized the importance of this initiative, stating, “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.“

Guidance, Not New Requirements

The illustrative examples are designed to guide the application of existing IFRS Accounting Standards, not to add or change the requirements. This guidance aims to help companies better communicate the impact of climate-related and other uncertainties on their financial position and performance. Barckow added, “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.“

Related Article: IFRS Foundation and EFRAG Publish Interoperability Guidance to Align ISSB and ESRS Standards

The IASB invites stakeholders to provide feedback on the proposed examples, with the comment period open until 28 November 2024. The feedback will help determine whether to proceed with these examples to accompany IFRS Accounting Standards. The IASB’s initiative is part of a broader effort to improve the reporting of climate-related and other uncertainties in financial statements, ensuring that investors have access to more comprehensive and consistent information.

By enhancing the transparency and consistency of financial reporting, these proposed examples aim to strengthen the connection between financial statements and other parts of a company’s reporting, such as sustainability disclosures. This effort is expected to provide investors with better information about climate-related risks and other uncertainties, ultimately supporting more informed decision-making.