Climate-related and Other Uncertainties in the Financial Statements- IASB maintenance project

Active
Monitoring
Vincent Papa
Sapna Heeralall

In response to the 2021 IASB Third Agenda Consultation, stakeholders expressed concerns about the inadequate reporting of climate-related risks in the financial statements. Based on the feedback received, in April 2022, the IASB decided to add to its work plan a project on climate-related risks in the financial statements. In March 2023, the IASB activated this project in its maintenance work plan. The purpose of the IASB project is to explore whether and how financial statements can better communicate information about climate-related and other uncertainties.

After initiating the project, from March to September 2023, the IASB staff conducted outreach to identify the nature of concerns related to the perceived inadequate reporting of climate-related risks, the causes and possible solutions to these concerns. In September 2023, following the outreach, the IASB decided to respond to stakeholder feedback by:

  • exploring the development of educational materials and articles (see supporting material) in addition to existing educational material (e.g., the articles on effects of climate-related matters on financial statements) ;
  • referring to the IFRS Interpretations Committee stakeholder questions on the recognition climate-related commitments in the financial statements (i.e., whether a provision is recognised) and interpretations of the impairment test ;
  • exploring possible illustrative examples; and
  • exploring possible narrow-scope standard-setting in relation to disclosures about estimates.

The IASB also renamed the project climate-related and other uncertainties in the financial statements to reflect the decision for a broader scope than climate-related risks.

This project and the work of the International Sustainability Standards Board (ISSB) complement each other in facilitating connectivity in general purpose financial reports. 

EFRAG activities

After the IASB initiated the project in March 2023 and started its outreach, EFRAG concurrently conducted similar outreach on the nature and causes of concerns and possible solutions for the perceived inadequate reporting. EFRAG's outreach and analysis of multiple thematic reviews of EU companies' reporting practices led to the publication of an EFRAG Secretariat Briefing on climate-related risks in the financial statements.

Current project status

In April 2024, the IASB approved the IFRS IC final agenda decision which clarified that climate-related commitments may result in constructive obligations. However, a provision is only recognised if there is a past event and transfer of economic resources. In addition, the IASB  tentatively decided:

  • to provide examples to illustrate how an entity applies IFRS Accounting Standards to report the effects of climate-related and other uncertainties in its financial statements; 
  • to include the examples as illustrative examples that would accompany IFRS Accounting Standards; and 
  • to publish an exposure draft to obtain feedback from stakeholders about the examples. 

The Exposure Draft is expected in H2 2024.