Background

In November 2021, the IFRS Foundation announced the creation of its new International Sustainability Standards Board (ISSB) tasked with developing a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.

In order to facilitate a running start of the ISSB, a Technical Readiness Working Group (TRWG) had been created in March 2021. Concomitantly with the announcement of the formation of the ISSB, the TRWG published a General requirements for disclosure of sustainability-related financial information prototype.

In an additional meeting in March 2022, the Due Process Oversight Committee (DPOC) confirmed that it does not object to the ISSB Chair and Vice-Chair publishing the exposure draft General Requirements for Disclosure of Sustainability-Related Financial Information that builds on the TRWG prototype before the ISSB is quorate.

The proposed standard on general requirements for sustainability-related disclosures published today is accompanied by an exposure draft of the ISSB's first thematic standard on climate related disclosures.

Key proposals

The main proposals in ED/2022/S1 General Requirements for Disclosure of Sustainability-Related Financial Information generally reflect the proposals in the prototype with some changed titles and strengthened definitions and some changes to the order of proposals. They cover the following aspects of sustainability reporting: 

• Objective: The objective of sustainability-related financial disclosures is 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. A reporting entity discloses material information about all of the significant sustainability-related risks and opportunities to which it is exposed. Materiality is assessed in the context of the information necessary for users of general purpose financial reporting to assess enterprise value.
• Scope: A reporting entity would apply the proposed standard in preparing and disclosing sustainability-related financial information in accordance with IFRS Sustainability Disclosure Standards. The application of the standard is not restricted to entities applying IFRSs.
• Core content: An entity would provide disclosures about governance, strategy, risk management, and metrics and targets unless another IFRS Sustainability Disclosure Standard permits or requires otherwise.
• General features: Applying the proposed general requirements standard, an entity would disclose information that is relevant and faithfully represents what it purports to represent. Usefulness of the information provided is enhanced if the information is comparable, verifiable, timely and understandable.
• Reporting entity: The exposure draft proposes that the reporting entity's boundary for its general purpose financial reporting is the same for its financial statements and sustainability-related financial disclosures. When currency is specified as the unit of measure, the reporting entity would use the presentation currency of its financial statements. The financial statements to which the sustainability-related financial disclosures relate must be disclosed.
• Connected information: The disclosures provided must enable users of general purpose financial reporting to understand the connections between the different sustainability-related risks and opportunities and how these are linked to general purpose financial reporting information.
• 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 the faithful representation of sustainability-related risks and opportunities in accordance with the principles set out in the proposed standard and would include additional disclosures when necessary.
• 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 considered 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.
• Comparative information: An entity would present comparative information regarding the previous period for all metrics reported in the current period. This might include comparative information for narrative and descriptive sustainability-related financial disclosures if relevant to an understanding of the current period’s sustainability-related financial disclosures.
• Frequency of reporting: An entity would report its sustainability-related financial disclosures at the same time as its related financial statements and the sustainability-related financial disclosures would be for the same reporting period as the financial statements.
  
• Location of information: An entity would disclose information required by IFRS Sustainability Disclosure Standards as part of its general purpose financial reporting. This can include an entity’s management commentary when management commentary forms part of an entity’s general purpose financial reporting or cross-referencing if the cross-referenced information is available to users of general purpose financial reporting on the same terms and at the same time as the general purpose financial reporting.
• Sources of estimation and outcome 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. When sustainability-related financial disclosures incorporate 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 (to the extent possible).
• Errors: Prior period errors are 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.

The deadline for submitting comments on these proposals is July 29, 2022.

The ISSB has also developed a survey to support stakeholders in responding to the proposals in the exposure draft as an alternative or in addition to a comment letter.

Transition and effective date

The standard would be applied prospectively. Comparative information would not be required to be disclosed in the first period in which an entity applies the proposed standard.

The Board intends to decide on the effective date after exposure. Earlier application would be permitted.

Additional information

Review the following additional information on the IFRS Foundation's website:

• ISSB press release
• Access to the exposure draft
• Access to the basis for conclusions
• Access to the illustrative guidance
• Access to the survey
• Snapshot overview of the proposals
• Document comparing the TRWG’s recommendations with the exposure drafts

The press release also notes that the ISSB's proposals will be presented in two live webinars on April 28 at 9am and 5pm BST.

In addition to publishing its first two exposure draft, the ISSB has also published a statement on its plans for building upon the SASB standards and for embedding SASB’s industry-based standards development approach into the ISSB’s standards development process. The statement discusses the industry-based approach to standards development, the inclusion of SASB standards in the exposure drafts published today, the commitment to improving the international applicability of SASB standards, the starting point for ISSB industry-based requirements, and current SASB projects. The statement also notes that the ISSB actively encourages preparers and investors to continue to provide full support for and to use the SASB Standards in this transition phase.

Review the full statement on the IFRS Foundation's website.

The memoranda of un­der­stand­ing formalize the part­ner­ships and funding arrange­ments required to establish the ISSB in Frankfurt. While the ISSB will have a global, multi-lo­ca­tion presence, the Frankfurt office will provide the seat of the Board and the office of the ISSB Chair. The office will provide key support functions for the ISSB, including the hosting of board meetings, and will act as a hub for the Europe, Middle East and Africa region.

The Trustees previously announced that Montreal will also host key functions of the ISSB and will act as a hub for the Americas region, enabling close cooperation with the San Francisco office (the Value Reporting Foundation (VRF) has headquarters in San Francisco, and the consolidation of the VRF into the IFRS Foundation is expected to be completed by June 30, 2022).

Please click for ad­di­tional in­for­ma­tion in the press release on the IFRS Foun­da­tion website.

Mr. Mackenzie, who is an IASB Board member and before that served six years as a member of the IFRS Interpretations Committee, follows Sue Lloyd who has been appointed Vice Chair of the newly formed the International Sustainability Standards Board (ISSB).

Review the press release on the IFRS Foundation's website.

The items discussed include:

• Required communications between the auditor and audit committee;
• Discussions in addition to required communications;
• Auditor strengths and areas for improvement;
• Review and discussion of PCAOB inspection reports;
• Quality control systems at audit firms; and
• Information outside the financial statements.

Re­view the Spotlight publication on the PCAOB's web­site.

The government has also made regulatory amendments to remove the requirement for administrators of pension plans providing only defined contribution benefits to file an auditor’s report on the plan’s annual financial statements. Instead, FSRA is able to require audited financial statements in certain circumstances.

Review the announcement.

The 2022 GAAP Taxonomy contains updates for amendments to accounting standards and other recommended improvements to the following topics and disclosure areas: credit losses, balance sheet offsetting, pledging and recourse, and deprecations from superseded guidance.

Re­view the press release on the SEC's web­site.

The proposal would require “registrants to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements.”

In the proposing release, the SEC noted that the disclosures registrants would be required to provide are similar to those that many companies provide under existing disclosure frameworks and standards, such as the Financial Stability Board's Task Force on Climate-Related Financial Disclosures (TCFD) and the Greenhouse Gas Protocol.

Review the following information:

• Deloitte's Heads Up — SEC proposes rule on climate disclosure requirements
• Press release and fact sheet, as well as statements by SEC Chair Gary Gensler and Commissioners Allison H. Lee, Hester M. Peirce, and Caroline A. Crenshaw, on the SEC’s website.
• Statements by TCFD Chair Michael Bloomberg and Vice Chair for Public Policy Mary Schapiro on the TCFD website.
• IFAC statement welcoming the proposal und stressing the importance of international alignment on the IFAC website.

Review the Staff Paper on the IASB's website.

The session began with four presentations on different sustainability initiatives.

A representative of the International Sustainability Standards Board (ISSB) explained about the growing and urgent demand for global standards to improve consistency and comparability that led the IFRS Foundation Trustees to establish the ISSB and to generally create the necessary institutional arrangements and technical groundwork for a global sustainability standard setter for the financial markets. After publication of prototype requirements on Climate-related Disclosures and on General Requirements for Disclosure of Sustainability-related Information in November 2021, the development of exposure drafts is well under way, the publication of the exposure drafts is expected by the end of March 2022. Chair and Vice Chair of the ISSB still need to decide on the comment letter period and whether to approach the DPOC for a shortened comment letter period (three months). The look and feel of the exposure drafts will be very similar to IASB exposure drafts and also include a comprehensive basis for conclusions. The ISSB representative concluded with a call to action and encouraged the IFASS members to familiarize themselves with the prototypes and to get ready to respond to the upcoming consultation documents by engaging with stakeholders in their jurisdictions.

Review a summary of the meeting on our global website.

The Committee is continuing its review of the governance and structure for establishing Canadian financial reporting and assurance standards as well as what might be needed for the future, including sustainability standards.

Review the press release on the AcSB's website.