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IASB Examines Financial Statements’ Reflection of Climate Risks

Board will ensure any proposals “work well” with IFRS sustainability disclosure standards due for issuance by the end of Q2 2023. 

The International Accounting Standards Board (IASB) has added a new project to its work plan to explore whether and how companies can provide better information about climate-related risks in their financial statements. 

The International Financial Reporting Standards (IFRS) Accounting Standards require companies to consider climate-related matters in their financial statements when the effect of those matters is material information for investors. 

In November 2020, the IASB published educational materials to help companies consider climate-related risks when preparing their financial statements. 

However, stakeholders have expressed concerns that climate-related risks are often perceived as remote, long-term risks that may not be appropriately considered in the financial statements. They also underlined that investors need better information about how climate-related risks impact the carrying amounts of assets and liabilities reported in the financial statements. 

The new project, discussed at the latest IASB meeting, will explore to what extent the educational material is helping companies reflect the effects of climate‑related risks in the financial statements, and what actions, if any, the IASB could take to further improve information about these matters. 

The project will inspect the nature of perceived shortcomings with financial statements in communicating information about climate-related risks; whether the requirements in Accounting Standards are sufficiently clear, as well as the reasons entities may not be adequately considering the effects of climate-related risks when applying the requirements. 

In undertaking the project, the IASB will consider the work of the International Sustainability Standards Board (ISSB) to ensure any proposals work well with IFRS Sustainability Disclosure Standards and that any information required by the two boards would be complementary. 

“This project and the work of the ISSB complement each other in facilitating connectivity in general purpose financial reports,” the IASB said in an article. Financial statements applying the IASB’s Standards and sustainability-related financial disclosures, as well as the ISSB’s Standards are “focused on providing information to inform investment decisions”.  

The article says the project will also consider whether other sustainability-related risks beyond climate should be covered; how scenario analyses provided when applying ISSB Standards could inform the measurement of assets and liabilities in the financial statements; and whether connectivity mechanisms in the ISSB’s first two Standards could be mirrored in IASB Standards. 

The outcomes of the project could include making minor amendments to the IASB Standards, issuing limited new application guidance or new illustrative examples, or publishing further educational materials. 

The first two IFRS Sustainability Disclosure Standards are due to be issued by the end of Q2 2023. 

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