IASB offers examples to improve reporting of climate-related uncertainties in financial statements

The International Accounting Standards Board published a consultation document Wednesday with eight proposed illustrative examples showing how companies could apply International Financial Reporting Standards when reporting the effects of climate-related and other types of uncertainties in their financial statements.

The IASB developed these illustrative examples after hearing strong demand from its stakeholders, especially investors. They worried that information about climate-related uncertainties in financial statements was sometimes insufficient or appeared to be inconsistent with the information provided outside the financial statements. 

In response to these concerns, the IASB's proposed examples aim to improve the transparency of information in financial statements, as well as strengthen the connection between financial statements and other parts of a company's reporting, such as sustainability disclosures.

The eight illustrative examples focus on areas such as materiality judgements, disclosures about assumptions and estimation uncertainties, and disaggregation of information. The principles and requirements illustrated in the examples can apply equally to other types of uncertainties beyond climate-related uncertainties, such as cybersecurity.

The IASB doesn't plan to come out with a new climate-related standard, since that's the job of its sister board, the International Sustainability Standards Board. They are both overseen by the IFRS Foundation, and the ISSB has already released a standard on climate-related disclosures last year as well as sustainability.

In developing the examples, the IASB collaborated with members of the ISSB and its technical staff to help ensure the illustrative examples work with the ISSB's sustainability-related disclosure requirements. The IASB also feels its existing standards already cover such uncertainties, even though they don't explicitly refer to climate-related disclosures.  The illustrative examples would help fill that gap.

"Investors have clearly communicated that they factor climate-related risks into their decision-making process," said IASB chair Andreas Barckow in a statement. "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."

The illustrative examples don't add to or change the requirements in IFRS Accounting Standards. Instead, they provide guidance on how the existing requirements in the standards should be applied to give investors better information about climate-related risks and other uncertainties.

The IASB is inviting all of its stakeholders to offer feedback on the proposed illustrative examples through Nov. 28, 2024. It plans to consider the feedback and decide whether to proceed with the proposed illustrative examples to accompany IFRS Accounting Standards.