New Developments within the IASB & IFRS Standards: Part 2

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 2nd of 2-part installment.

Looking to the future

At its March and April meetings, the IASB will continue deliberating feedback on its Agenda Consultation to decide whether and, if so, what more it could do about the accounting for climate-related risks in the financial statements.

As a starting point, we would need to first consider developments in the financial statements now that we have had another year for our climate educational documents to bed down in practice. As I’ve said, IFRS Accounting Standards already have requirements covering the implications of sustainability matters in the financial statements. However, there may still be a case to do more.

In that regard, we will work closely with our colleagues on the International Sustainability Standards Board (ISSB). As I mentioned at the beginning, the IASB focuses on the financial statements, which reflect transactions and events that have taken place up until the reporting date. Of course, financial statements do incorporate assumptions about the future to the extent that they relate to assets and liabilities recognised, but these are typically based on a particular level of certainty (such as ‘more likely than not’). For example, we may all feel quite strongly that more regulation will be needed to impose a monetary cost on negative climate actions. But, will that be? Through higher tax, prohibited activities or some other means? And when? It may be too uncertain today to anticipate specific possible future actions in the financial statements.

And this is where the IFRS Foundation’s newly created ISSB comes in—and where we see the power of having the two investor-focused standard-setting bodies housed within the IFRS Foundation, building on each other’s work in a virtuous cycle.

IFRS Accounting Standards, produced by the IASB, provide the ‘monetary’ (financial) backdrop, if you will, for investors’ analysis of sustainability-related risks and opportunities and associated future uncertainties. In this regard, IFRS Sustainability Disclosure Standards, produced by the ISSB, will require disclosure of information about the sustainability-related risks and opportunities that affect the company’s future cashflows and business model and, thus, its enterprise value—matters that affect future financial statements (hence, creating the virtuous cycle). Together, the two boards can help investors connect these two complementary information sets into a single, holistic package to foster transparency, accountability and efficiency in global capital markets.

Let me close by reminding everyone where I have started my remarks, namely: how existing IFRS Accounting Standards apply to climate matters. We all have part to play—companies, auditors, regulators, users, and standard setters. Let’s all do our part to make sure that they are used for this purpose.

I look forward to working with you further over the coming months and years. Thank you for your time and stay tuned for further developments.

To read the first installment of this story, click here.