New Developments within the IASB & IFRS Standards

On the 16th of March 2022, Chair of the IASB, Andreas Barckow, delivered the keynote speech at the International Corporate Governance Network’s (ICGN) Global Sustainability Standards: Convergence and the Future event. He discussed the IASB & sustainability-related matters in the AFS as well as looking to the future. These are some excerpts from his speech. This is the 1st of 2-installment.

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The International Accounting Standards Board (IASB) sets the accounting standards used in the financial statements of companies in over 140 jurisdictions in the world. Today, I’d like to share with you what the IASB already has in place on accounting for sustainability-related matters in the financial statements and where we may go in the future.

Starting with where we are today

If you do a word search for ‘sustainable’ or ‘climate’ in IFRS Accounting Standards … you’ll come across our standard on agriculture and a passing reference in our management commentary guidance.

But this important topic is within the scope of many of our current standards, even if it is not mentioned by name. IFRS Accounting Standards are principle based, setting out requirements for the recognition, measurement and disclosure of assets and liabilities in the financial statements as a general matter, rather than specifying every possible transaction or event that could trigger depiction in the financial statements.

This principle-based approach has been the IASB’s modus operandi since inception. In today’s ever-changing and highly uncertain world, it is even more important. The IASB does not set Standards for every emerging risk—whether it is climate change, biodiversity, pandemics or geo-political conflicts. Rather, our principle-based Standards already set out requirements that may be applicable.

And that’s what the educational material we issued in November 2020 illustrated. This educational material builds on an earlier article by Nick Anderson, one of our IASB members and a speaker on your next panel. Both documents set out specific examples of when IFRS Accounting Standards require companies to consider the effects of climate-related matters in preparing their financial statements. This consideration involves deciding how climate-related issues may affect the measurement of assets and liabilities. The articles also highlight some disclosure considerations and highlight an overall requirement for a company to consider whether specific requirements are insufficient to enable users to understand the effect of some events and conditions on the company’s financial statements.

Examples in these documents include the recognition and measurement of impairment losses on tangible and intangible assets; the recognition and measurement of provisions for government levies, remediation of environmental damage and onerous contracts; and the measurement of loan contracts with climate-related targets.

These documents also highlight disclosure requirements in IFRS Accounting Standards, including specific requirements on:

• the disclosure of events and circumstances that led to the recognition of an impairment loss; and
• disclosure of the key assumptions and the amount by which the key assumption must change to result in an impairment loss if no impairment loss is recognised, where goodwill is present and a reasonably possible change in key assumptions would result in an impairment loss.

IFRS Accounting Standards also have more general ‘catch-all’ disclosure requirements about, for example:

• management’s judgments that have the most significant effect on amounts recognised in the financial statements.
• assumptions that have a significant risk of resulting in a material adjustment to the amounts of assets and liabilities within the next financial year. For instance, users are increasingly interested in understanding whether the recoverability of the cost of a well is based on assumptions of pumping oil at $50, 80 or 150 per barrel. These disclosures must discuss the nature of the assumption and, depending on the nature of the assumptions, may include sensitivity analyses and other information.

We have heard, however, of widespread demand for more disclosure on sustainability—through our regular engagement with stakeholders and through our five-yearly Agenda Consultation, which helps the IASB set its priorities for the next five-year period, in this case, from 2022 to 2026.

Source: ifrs.org