We recently responded to the IFRS Interpretation Committee’s tentative decision on the accounting treatment of climate commitments in line with IAS 37 Provisions.? IAS 37 specifies the accounting and disclosure of provisions and contingent liabilities in financial statements. ?
At A4S we believe that the disclosure of robust, comparable and useful information is essential to address the environmental and social challenges facing the global economy.?Standard setters and the wider finance community must ensure the right accounting mechanisms are also in place. This interpretation goes to the heart of financial reporting.??
The following three observations have been informed by our work with the finance and accounting community globally.?
- The Committee should consider broadening the range of fact patterns and scenarios beyond the narrow example already assessed. This is important for consistency purposes and to provide additional guidance to a range of preparers in different sectors.???The types of net zero commitments and ambitions being disclosed by companies vary significantly. For example, some organizations are announcing long-term ambitions, while others are providing more detailed plans with short and medium term targets.? Some organizations are utilizing third-party certification processes, while others are joining sector initiatives on net zero, with varying degrees of implementation detail. Varying circumstances may result in different levels of expectations from users of financial information; in some cases, obligations may arise from past events – for example, where a company commits to offset legacy emissions, consideration of further fact patterns would be useful. Guidance can also be provided where transition plans evolve with new technologies and better data to enable consistent approaches to financial disclosures.??
- The Committee should assess and provide views on the conditions under which climate commitments or publicly disclosed transition plans align with the definition of restructuring as defined in IAS 37.10.?Climate commitments and the implementation of transition plans for organizations in certain industries may impact the company business models.? We urge the Committee to provide clarification on situations, if any, that may lead to meeting the definition of restructuring in IAS 37. This clarification could be conveyed through guidance, examples, and real-world scenarios.??
- Beyond IAS 37,? providing clear guidance on whether and how climate commitments and transition plans should be presented or disclosed in financial statements will benefit preparers and users.?Users have struggled to assess the reliability and credibility of such announcements and disclosures, as well as assessing the long-term investment and performance of organizations in relation to such targets. Clearer connectivity, links and bridges, in particular between IAS 37, IAS 38 and IFRS S1 and S2, need to be addressed with urgency; this can already be actioned by the Committee. We believe the Integrated Reporting framework can be a useful tool to support the work of the IFRS Foundation in this space (for more details, you can read our response to the ISSB’s consultation on agenda priorities).??
We commend the work to date by the IFRS Foundation as a whole and the intention to promote further connectivity and integration between financial and sustainability reporting.?We look forward to continuing to support CFOs, investors, accountants and the wider finance community in navigating this rapidly evolving landscape.??
