November 2021

Basel Committee consults on principles for the effective management and supervision of climate-related financial risks

Nov 30, 2021

The Basel Committee on Banking Supervision has issued a public consultation on principles for the effective management and supervision of climate-related financial risks. Comments are requested by February 16, 2022.

The Committee is taking a holistic approach to addressing climate-related financial risks to the global banking system. This includes the assessment and consideration of disclosure, supervisory and regulatory measures.

Through this public consultation, the Committee seeks to promote a principles-based approach to improving both banks' risk management and supervisors' practices related to climate-related financial risks. The principles seek to achieve a balance in providing a common baseline for internationally active banks and supervisors, while retaining sufficient flexibility given the evolving practices in this area.

Review the press release and consultative document.

Climate-related disclosures prototype

Nov 03, 2021

On November 3, 2021, the IFRS Foundation released a climate-related disclosures prototype that is the proposal of the Technical Readiness Working Group (TRWG) for the first thematic standard of the ISSB.

The TRWG was created in March 2021 to facilitate a running start of the ISSB. It was designed to integrate and build on the work of relevant initiatives focused on meeting investors’ information needs, with the purpose of providing technical recommendations for consideration by the ISSB. The climate-related disclosures prototype published today is structured around the four TCFD pillars of governance, strategy, risk management, and metrics and targets:

  • Objective: The recommended objective of the prototype is to require an entity to disclose information about its exposure to climate-related risks and opportunities.
  • Scope: The prototype would apply to climate-related risks that the entity is exposed to, climate-related opportunities available to and considered by the entity.
  • Governance: Under the prototype, an entity would disclose information that enables users of general purpose financial reporting to understand the governance processes, controls and procedures used to monitor and manage climate-related risks and opportunities.
  • Strategy: An entity would disclose information that enables users of general purpose financial reporting to understand the strategy for addressing climate-related risks and opportunities as well as the climate-related risks and opportunities that would affect the strategy and the impact of climate-related risks and opportunities on the strategy.
  • Risk management: An entity would disclose information that enables users of general purpose financial reporting to understand how climate-related risks are identified, assessed, managed and mitigated.
  • Metrics and targets: An entity would disclose information that enables users of general purpose financial reporting to understand the entity’s performance in managing climate-related risks and opportunities.

There are two appendices to the climate prototype. Appendix A contains the defined terms used; Appendix B sets out industry-based disclosure requirements, organized by sector and industry. Supplementary technical protocols for disclosure requirements describe industry requirements for climate-related metrics.

Review the climate-related prototype and the supplementary technical protocols for disclosure requirements on the IFRS Foundation's website.

Deloitte strongly welcomes the announcement of the IFRS Foundation’s International Sustainability Standards Board (ISSB)

Nov 03, 2021

Deloitte strongly welcomes the announcement by the IFRS Foundation (IFRSF) of its new International Sustainability Standards Board (ISSB). Deloitte also welcomes the commitment by the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF, which houses the Integrated Reporting Framework and the Sustainability Accounting Standards Board (SASB) Standards) to merge with the new board, and the publication of prototype climate and general disclosure requirements by the IFRSF’s Technical Readiness Working Group (TRWG).

This is a significant step in response to the urgent need of investors and other stakeholders to understand how climate and sustainability risks and opportunities faced by business affect enterprise value and financial performance.

Global sustainability standards will facilitate consistent and comparable reporting by companies across jurisdictions, which will help direct capital to long-term, resilient business as the world transitions to a low-carbon economy.

Review the press release on our Global website.

EU launches public consultation on statutory audit, corporate governance and supervision

Nov 30, 2021

The European Commission has initiated a broad review on the three core pillars of corporate reporting for large companies, paving the way for further EU legislative intervention. Responses are requested by February 4, 2022.

Referencing the need to address recent corporate failures in Europe, notably Wirecard and Carillion, the Commission is calling for evidence to help evaluate the EU audit and corporate governance framework, as far as relevant to reporting. As the Commission papers make clear, ‘the three pillars that underpin the quality and reliability of corporate reporting by listed companies have not fully played their intended role; without a new EU intervention, it is likely that problems will persist.’

Review the following information:

FASB proposes changes to interim disclosure requirements

Nov 01, 2021

On November 1, 2021, the Financial Accounting Standards Board (FASB) issued Proposed Accounting Standards Update, "Interim Reporting (Topic 270): Disclosure Framework—Changes to Interim Disclosure Requirements". The proposed Update would modify the disclosure requirements for interim financial reporting. Comments are requested by January 31, 2022.

The proposed ASU is part of the FASB’s disclosure framework project to improve the effectiveness of disclosures in the notes to financial statements. It would update FASB Accounting Standards Codification Topic 270, Interim Reporting, which clarifies the application of accounting principles and reporting practices for entities preparing interim financial statements and notes in accordance with Generally Accepted Accounting Principles (GAAP). The amendments to Topic 270 would apply to all entities that provide interim financial statements and notes in accordance with GAAP.

Review the press release and exposure draft on the FASB's website.

G20 supports IFRS Foundation sustainable standard-setting

Nov 01, 2021

The Group of 20 (G20) has released its G20 Leaders' Declaration from the G20 Leaders' summit held in Rome on October 30-31, 2021.

Generally, the declaration stresses that sustainable finance is crucial for promoting orderly and just transitions towards green and more sustainable economies and inclusive societies, in line with the 2030 Agenda for Sustainable Development and the Paris Agreement. On the setting of sustainable disclosure standards, the declaration notes:

We also welcome the work programme of the International Financial Reporting Standards Foundation to develop a baseline global reporting standard under robust governance and public oversight, building upon the FSB’s Task Force on Climate-Related Financial Disclosures framework and the work of sustainability standard-setters.

Review the full G20 Leaders' Declaration on the G20's website.

General requirements for disclosure of sustainability-related financial information prototype

Nov 03, 2021

On November 3, 2021, the IFRS Foundation released a general requirements prototype that is the proposal of the Technical Readiness Working Group (TRWG) for a general presentation standard of the ISSB.

The TRWG was created in March 2021 to facilitate a running start of the ISSB. It was designed to integrate and build on the work of relevant initiatives focused on meeting investors’ information needs, with the purpose of providing technical recommendations for consideration by the ISSB. The general requirements for disclosure of sustainability-related financial information prototype published today is inspired by IAS 1,Presentation of Financial Statements and sets out the overall requirements for sustainability-related disclosures to investors:

  • Objective and scope: The recommended objective of sustainability-related financial disclosures is described as providing information about the significant sustainability-related risks and opportunities to which the reporting entity is exposed that is useful to primary users of general purpose financial reporting in deciding whether to provide resources to the entity. The recommended standard would apply when an entity prepares and discloses sustainability-related financial information in accordance with IFRS Sustainability Disclosure Standards.
  • Materiality: An entity would disclose all information on sustainability matters that is material for investors and other providers of capital in respect of a reporting entity. Sustainability-related financial information is described as material if omitting, misstating or obscuring that information could reasonably be expected to influence decisions that the primary users of general purpose financial reports make on the basis of those reports.
  • Reporting entity boundary and connectivity: The reporting entity's boundary for its general purpose financial reporting is recommended to be the same for its financial statements and sustainability-related financial disclosures. The disclosures provided must enable users to understand the connections, dependencies and trade-offs between sustainability-related financial disclosures and other information in general purpose financial reporting.
  • General features: Applying the general requirements prototype an entity would disclose information that focuses on matters critical to the way an entity operates following the four pillars of governance, strategy, risk management, and metrics and targets. The prototype sets out objectives for each of these pillars and disclosure requirements to achieve these objectives.
  • Comparative information and frequency of reporting: Under the prototype, an entity would present comparative information regarding the previous period for all amounts including metrics and key performance indicators reported in the current period. An entity would report at least every 12 months and at the same time as its financial statements.
  • Reporting channel: Sustainability-related disclosures to investors would be disclosed as part of a reporting entity's general purpose financial reporting that is targeted at investors and other providers of capital and encompasses financial statements and sustainability-related financial information.
  • Identifying the related financial statements: Sustainability-related financial disclosures would identify the financial statements to which they relate. If the related financial statements are not prepared in accordance with IFRSs, the sustainability-related financial disclosures would disclose the basis on which the financial statements are prepared.
  • Using financial data and assumptions: When sustainability-related financial disclosures incorporates financial data and assumptions, such financial data and assumptions would be consistent with the corresponding financial data and assumptions incorporated in the entity’s financial statements.
  • Fair presentation: A complete set of sustainability-related financial disclosures would present fairly the sustainability-related risks and opportunities to which the entity is exposed. A fair presentation requires an entity to disclose information that is relevant, reliable, comparable and understandable and would include additional disclosures when the information provided is insufficient to enable users to understand the impact or potential impact of significant sustainability-related risks and opportunities on the entity’s enterprise value.
  • Sources of estimation uncertainty: When sustainability-related financial disclosures cannot be directly quantified and can only be estimated, the use of reasonable estimates is an essential part of preparing sustainability-related financial disclosure and does not undermine the usefulness of the information if the estimates are clearly and accurately described and explained.
  • Errors: The general requirements prototype describes prior period errors as omissions from, and misstatements in, the entity’s sustainability-related financial disclosures for one or more prior periods. Unless impracticable, an entity would correct material prior period errors retrospectively in the first general purpose financial reporting authorized for issue after their discovery.
  • Statement of compliance: An entity whose sustainability-related financial disclosures comply with all of the relevant requirements of IFRS Sustainability Disclosure Standards would include an explicit and unqualified statement of compliance.

There are four appendices to the general requirements prototype. Appendix A explains the defined terms used in the general requirements prototype; Appendix B sets out a general-purpose financial report that includes sustainability-related financial information and financial statement information; Appendix C provides an application guidance on materiality; and Appendix D describes qualitative characteristics of useful sustainability-related financial information.

Review the general requirements prototype on the IFRS Foundation's website.

IASB proposes amendments to IAS 1 regarding the classification of debt with covenants

Nov 19, 2021

On November 19, 2021, the International Accounting Standards Board (IASB) published the exposure draft "Non-current Liabilities with Covenants (Proposed amendments to IAS 1)" to clarify how conditions with which an entity must comply within twelve months after the reporting period affect the classification of a liability. The deadline for submitting comments is March 21, 2022.

 

Background

In January 2020, the Board issued Classification of Liabilities as Current or Non-current, which amended IAS 1, Presentation of Financial Statements. The amendments clarified how an entity classifies debt and other financial liabilities as current or non-current in particular circumstances. The amendments are effective for annual reporting periods beginning on or after 1 January 2023, with earlier application permitted.

In December 2020, the IFRS Interpretations Committee published a tentative agenda decision in response to informal feedback and enquiries about how an entity applies the amendments to particular fact patterns. After considering feedback to its tentative agenda decision, the Committee handed the matter over to the IASB as that feedback provided information about situations the Board did not specifically consider when developing the 2020 amendments.

In response to that new information, the Board tentatively decided to amend IAS 1 with respect to classification (as current or non-current), presentation and disclosures of liabilities for which an entity’s right to defer settlement for at least 12 months is subject to the entity complying with conditions after the reporting period.

 

Key proposals

The main proposals in ED/2021/9 Non-current Liabilities with Covenants (Proposed amendments to IAS 1) would: 

  • Modify the requirements introduced by Classification of Liabilities as Current or Non-current on how an entity classifies debt and other financial liabilities as current or non-current in particular circumstances: The Board proposes that conditions an entity must comply with within twelve months after the reporting period would have no effect on whether an entity has the right to defer settlement of a liability for at least twelve months after the reporting period, i.e. such conditions have no effect on the classification of a liability as current or non-current. When an entity classifies such a liability as non-current, however, it would be required to disclose information that enables users of financial statements to assess the risk that the liability could become repayable within twelve months. An entity would also present separately, in its statement of financial position, liabilities classified as non-current for which the entity’s right to defer settlement for at least twelve months after the reporting period is subject to compliance with certain conditions within twelve months after the reporting period.
  • Defer the effective date of the 2020 amendments to no earlier than 1 January 2024.

The deadline for submitting comments on these proposals is 21 March 2022.

 

Effective date

The Board intends to decide on the effective date after exposure, but the date would be no earlier than January 1, 2024. The amendments would be applied retrospectively in accordance with IAS 8. Earlier application would be permitted.

 

Alternative views

The exposure draft contains alternative views by two Board members. Both members dissented because they disagree with the Board’s proposal to require an entity to present separately, in its statement of financial position, non-current liabilities subject to covenants. They would have preferred these conditions to be communicated through the notes to the financial statements.

 

Additional information

 

IASB proposes amendments to IAS 7 and IFRS 7 regarding supplier finance arrangements

Nov 26, 2021

On November 26, 2021, the International Accounting Standards Board (IASB) published the exposure draft "Supplier Finance Arrangements (Proposed amendments to IAS 7 and IFRS 7)" to add disclosure requirements, and "signposts" within existing disclosure requirements, that would ask entities to provide qualitative and quantitative information about supplier finance arrangements. Comments are requested by March 28, 2022.

 

Background

The IFRS Interpretations Committee received a submission about supply chain finance arrangements asking:

  • How an entity presents liabilities to pay for goods or services received when the related invoices are part of a supply chain finance (or reverse factoring) arrangement; and
  • what information about reverse factoring arrangements an entity is required to disclose in its financial statements.

In response to that submission, the Committee published an agenda decision in December 2020. However, feedback and input received — in particular from investors and analysts — suggested the information entities provide about supplier finance arrangements applying existing IFRS requirements does not meet all investor information needs.

In response to that feedback, the Board tentatively decided to amend IAS 7, Statement of Cash Flows and IFRS 7, Financial Instruments: Disclosures to add disclosure requirements, and ‘signposts’ within existing disclosure requirements, that would ask entities to provide qualitative and quantitative information about supplier finance arrangements.

 

Key proposals

The main proposals in ED/2021/10 Supplier Finance Arrangements (Proposed amendments to IAS 7 and IFRS 7) would: 

  • Not define supplier finance arrangements. Instead, the proposed amendments describe the characteristics of an arrangement for which an entity would be required to provide the proposed information and the amendments would also provide examples of the different forms of such arrangements that would be within the scope of the Board’s proposals.
  • Add a disclosure objective. Entities would have to disclose in the notes information that enables users of financial statements to assess the effects of their supplier finance arrangements on their liabilities and cash flows.
  • Complement current requirements in IFRSs by adding additional disclosure requirements about:
    • the terms and conditions of each supplier finance arrangement;
    • for each arrangement, as at the beginning and end of the reporting period:
      • a) the carrying amount of financial liabilities that are part of the arrangement and the line item(s) in which those financial liabilities are presented;
      • b) the carrying amount of financial liabilities disclosed under a) for which suppliers have already received payment from the finance providers;
      • c) the range of payment due dates (for example, 30 to 40 days after the invoice date) of financial liabilities disclosed under a); and
    • as at the beginning and end of the reporting period, the range of payment due dates of trade payables that are not part of a supplier finance arrangement.
    An entity would only be permitted to aggregate this information for different arrangements when the terms and conditions of the arrangements are similar.
  • Add supplier finance arrangements as an example within the liquidity risk disclosure requirements in IFRS 7 and the disclosure requirements regarding changes in liabilities arising from financing activities in IAS 7.

The deadline for submitting comments on these proposals is March 28,  2022.

 

Effective date

The Board intends to decide on the effective date after exposure. The amendments would be applied retrospectively in accordance with IAS 8. Earlier application would be permitted.

 

Additional information

 

IASB releases three webcasts on the reduced disclosure proposal

Nov 10, 2021

On November 10, 2021, the International Accounting Standards Board (IASB) released three webcasts on its Exposure Draft (ED), "Subsidiaries without Public Accountability: Disclosures". The ED would permit eligible subsidiaries that are small and medium-sized entities (SMEs) to apply IFRS Standards but with reduced disclosure requirements.

The three webcasts discuss:

  • Objectives and scope of the project.
  • Proposed disclosure requirements.
  • Structure and application of the draft Standard.

Review the press release on the IASB’s website.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.